Legislature(2017 - 2018)HOUSE FINANCE 519

01/24/2017 01:30 PM House FINANCE

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01:32:08 PM Start
01:33:03 PM Fy 18 Budget Overviews: Department of Health and Social Services
02:32:38 PM Fy 18 Budget Overviews: Department of Natural Resources
03:11:11 PM Presentation: a Sustainable Solution for Alaska Destination Marketing Funding: a Tourism Improvement District Model
03:47:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overviews: FY18 Budget by TELECONFERENCED
- Dept. of Health & Social Services
- Dept. of Natural Resources
Presentation: A Sustainable Solution for Alaska
Destination Marketing Funding: A Tourism
Improvement District Model by Sarah Leonard,
President & Chief Executive Officer, AK Travel
Industry Assoc. (ATIA); Colleen Stephens, Stan
Stephens Glacier & Wildlife Cruises & Past Chair
of the ATIA Board of Directors; John Lambeth,
President & Chief Executive Officer, CIVITAS
                  HOUSE FINANCE COMMITTEE                                                                                       
                     January 24, 2017                                                                                           
                         1:32 p.m.                                                                                              
1:32:08 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Seaton  called the House Finance  Committee meeting                                                                    
to order at 1:32 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Valerie  Davidson, Commissioner,  Department  of Health  and                                                                    
Social   Services;   Shawnda   O'Brien,   Acting   Assistant                                                                    
Commissioner,  Department  of  Health and  Social  Services;                                                                    
Vickie  Wilson, Director,  Alaska Pioneer  Homes, Department                                                                    
of  Health and  Social  Services;  Andy Mack,  Commissioner,                                                                    
Department  of Natural  Resources; Fabienne  Peter-Contesse,                                                                    
Support Services Director,  Department of Natural Resources;                                                                    
Ed  Fogels,  Deputy   Commissioner,  Department  of  Natural                                                                    
Resources; Mark  Wiggin, Deputy Commissioner,  Department of                                                                    
Natural  Resources;  Sarah   Leonard,  President  and  Chief                                                                    
Executive  Officer,   Alaska  Travel   Industry  Association                                                                    
(ATIA);   John  Lambeth,   President  and   Chief  Executive                                                                    
Officer, CIVITAS; Colleen Stephens,  Stan Stephens Glacier &                                                                    
Wildlife Cruises and Member of the ATIA Board of Directors.                                                                     
FY 18 BUDGET OVERVIEWS:                                                                                                         
     DEPARTMENT OF HEALTH AND SOCIAL SERVICES                                                                                   
     DEPARTMENT OF NATURAL RESOURCES                                                                                            
PRESENTATION: A SUSTAINABLE  SOLUTION FOR ALASKA DESTINATION                                                                    
MARKETING FUNDING: A TOURISM IMPROVEMENT DISTRICT MODEL                                                                         
Co-Chair Seaton discussed the meeting agenda.                                                                                   
^FY  18 BUDGET  OVERVIEWS: DEPARTMENT  OF HEALTH  AND SOCIAL                                                                  
1:33:03 PM                                                                                                                    
Co-Chair Seaton  asked members to  hold questions  until the                                                                    
end of the presentation.                                                                                                        
VALERIE  DAVIDSON, COMMISSIONER,  DEPARTMENT  OF HEALTH  AND                                                                    
SOCIAL SERVICES  (DHSS), introduced  staff in the  room. She                                                                    
provided  a  PowerPoint  presentation  titled  "Results  for                                                                    
Alaskans:  Department  of  Health &  Social  Services  House                                                                    
Finance, FY2018 Department Overview"  dated January 24, 2017                                                                    
(copy  on file).  She addressed  slide 2  and addressed  the                                                                    
department's   history.   She   shared   that   the   Alaska                                                                    
Territorial Health Department had  been established in 1919.                                                                    
At the  proclamation of statehood  in 1959  the department's                                                                    
responsibilities  had  been  expanded  to  provide  for  the                                                                    
promotion  and  protection  of  public  health  and  welfare                                                                    
(outlined  in Article  7, Sections  4  and 5  of the  Alaska                                                                    
Constitution).   The   slide    included   links   for   the                                                                    
department's  website  and  other  resources  including  the                                                                    
department's  constitutional authority,  statutory authority                                                                    
(Title 47), and the FY 18 proposed budget.                                                                                      
1:35:21 PM                                                                                                                    
Commissioner  Davidson  introduced  slides prepared  by  the                                                                    
Legislative Finance  Division (LFD).  She asked  a colleague                                                                    
to outline the slides.                                                                                                          
SHAWNDA O'BRIEN,  ACTING ASSISTANT  COMMISSIONER, DEPARTMENT                                                                    
OF  HEALTH  AND  SOCIAL  SERVICES, addressed  slide  3  that                                                                    
provided a representation of  the department's total General                                                                    
Funds  (GF), including  its  designated  general fund  (DGF)                                                                    
authority.  She detailed  that  the  department's GF  growth                                                                    
over the past  10 years had been $300  million. Beginning in                                                                    
FY  15  the  DHSS  GF   had  begun  to  decline;  the  total                                                                    
undesignated general  fund (UGF)  savings realized  since FY                                                                    
15  was $190  million. Slide  4 included  all funds  for the                                                                    
department's  operation broken  out by  lines of  authority.                                                                    
She shared that 15 percent of  the cuts taken over the years                                                                    
had  been to  direct programs.  The department's  budget had                                                                    
grown over  the past 10  years, primarily in the  grants and                                                                    
benefits line. Of the reductions  taken by the department in                                                                    
recent  years, 15  percent had  been to  direct benefits  or                                                                    
programs. The  grants line reflected  that 77 to  78 percent                                                                    
of the  department's total funding  was in its  benefits and                                                                    
program areas.                                                                                                                  
1:37:29 PM                                                                                                                    
Ms.  O'Brien addressed  slide  5, which  showed  how GF  was                                                                    
broken out  across the department's divisions.  She noted in                                                                    
2010 there  had been  a large dip  in the  Medicaid Services                                                                    
program, which  represented [federal] American  Recovery and                                                                    
Reinvestment  Act (ARRA)  funding. Subsequently,  the growth                                                                    
had  steadily climbed  due to  program area  growth and  the                                                                    
loss of ARRA  funding. The largest increase  to the Medicaid                                                                    
program occurred  in FY  12 due to  program growth.  Slide 6                                                                    
included  all   funds  spread  across  all   divisions.  The                                                                    
Medicaid  Services accounted  for most  of the  department's                                                                    
funding  (64 percent).  The Medicaid  program had  decreased                                                                    
overall in UGF funding by  $112 million since 2015. However,                                                                    
the department  had been  able to  maintain services  in the                                                                    
area despite reductions in UGF funding.                                                                                         
Ms. O'Brien turned to slide  7, which showed a comparison of                                                                    
all  funding  sources over  the  past  10 years.  While  the                                                                    
department's UGF funding had  continued to decrease, federal                                                                    
funds  had maintained  its  service  levels. She  elaborated                                                                    
that  many   of  the  programs  were   critical  safety  net                                                                    
programs; programs  the department  had reduced  funding for                                                                    
totaled 15 percent of its overall benefits.                                                                                     
1:39:56 PM                                                                                                                    
Commissioner  Davidson moved  to  slides 8  through 19  that                                                                    
included a  complicated matrix with  99 rows and  12 columns                                                                    
of detail as  requested by the House  Finance Committee. She                                                                    
provided  detail about  the format.  She explained  the gray                                                                    
horizontal  rows   showed  summary  information.   Column  8                                                                    
pertaining to the rating of  effectiveness used a scale of 1                                                                    
to  3 (number  1 reflected  getting the  job done,  number 2                                                                    
indicated  getting   the  job  done  but   with  substantial                                                                    
opportunity  for improvement,  and  number  3 reflected  not                                                                    
getting   the  job   done   with   little  opportunity   for                                                                    
improvement).  The information  in the  first column  showed                                                                    
the department  total including the budget  breakdown by all                                                                    
funds (UGF,  DGF, Federal, and  Other). The total  number of                                                                    
employees   were    also   included.    The   constitutional                                                                    
requirements as outlined in Article  7, Sections 4 and 5 was                                                                    
included  and  statutory  authority  was shown  on  the  far                                                                    
1:41:59 PM                                                                                                                    
Ms. O'Brien explained slide 8  showing department totals and                                                                    
the  Division of  Alaska Pioneer  Homes, which  was made  up                                                                    
primarily of staff  serving residents of the  homes. Most of                                                                    
the staffing  appeared in  row 4,  which also  accounted for                                                                    
the majority of the component's funding.                                                                                        
Ms.  O'Brien  addressed  slide   9  that  pertained  to  the                                                                    
Division of Behavioral Health. She  highlighted that most of                                                                    
the staffing and positions for  the division were located at                                                                    
the Alaska Psychiatric Institute  (API) and were tasked with                                                                    
providing  direct services  to  patients. Row  6 showed  the                                                                    
Treatment and  Recovery Grant  Program, which  accounted for                                                                    
the largest  percentage of UGF  in the division.  Funding in                                                                    
the  component was  primarily for  grants  and services  for                                                                    
substance abuse,  disorder, prevention, and  treatment). The                                                                    
component  also included  mental health  treatment services.                                                                    
The UGF  funds went  to 16 residential  treatment facilities                                                                    
and  19  outpatient  treatment  facilities.  The  department                                                                    
anticipated   that  Medicaid   expansion  would   allow  for                                                                    
increased usage for providers to  bill Medicaid for services                                                                    
for  residential  and  outpatient  treatment  services.  The                                                                    
administrative     component     was     undergoing     some                                                                    
reorganizational changes. She turned  to slide 10 related to                                                                    
Children's  Services.  She  noted  that  the  administrative                                                                    
component for  the division was  undergoing reorganizational                                                                    
1:44:56 PM                                                                                                                    
Ms.  O'Brien  moved to  the  Office  of Children's  Services                                                                    
(OCS)  on  slide 10.  The  largest  body of  the  division's                                                                    
employees  were in  the frontline  social worker  component.                                                                    
Rows 20  through 23  pertained to  foster care  and adoption                                                                    
guardianship  payments  (the  division's  formula  program).                                                                    
Slide   11  showed   Health  Care   Services.  The   medical                                                                    
assistance  administration component  included  most of  the                                                                    
division's  employees (shown  in row  28). She  detailed the                                                                    
individuals were responsible for  paying Medicaid claims and                                                                    
for  SB  74 [Medicaid  reform  legislation  passed in  2016]                                                                    
Medicaid  redesign work.  Row 25  pertained to  catastrophic                                                                    
coverage. She pointed out that  the numbers had been reduced                                                                    
significantly over  the years -  over 400 Alaskans  had been                                                                    
served by the  component in the past, the  majority of which                                                                    
were now served by Medicaid.                                                                                                    
Ms. O'Brien addressed the  department's Division of Juvenile                                                                    
Justice on slide 12. Rows  31 through 39 indicated that most                                                                    
of  the   division's  employees   were  spread   across  the                                                                    
facilities and  were providing direct services  to juveniles                                                                    
served by the division. She  relayed the division had closed                                                                    
its  Ketchikan facility  in an  effort to  reduce costs  and                                                                    
create efficiencies due to low  utilization. She shared that                                                                    
the department  had lost its  one-time funding for  the Nome                                                                    
Youth  Facility  in  the  proposed  FY  18  budget  and  was                                                                    
expecting its closure in FY 18.                                                                                                 
Ms.  O'Brien moved  to slides  13 and  14 pertaining  to the                                                                    
Division of Public Assistance. Most  of the division's staff                                                                    
resided   in  field   services  -   staff  responsible   for                                                                    
determining eligibility  and providing direct  services. The                                                                    
majority of the  UGF funding for the division  went to adult                                                                    
public assistance programs; the  funding was used to satisfy                                                                    
the state's maintenance of effort for Medicaid.                                                                                 
Co-Chair Seaton asked for the rows.                                                                                             
1:47:18 PM                                                                                                                    
Ms. O'Brien  replied she was  addressing row 45  [slide 13].                                                                    
She turned to slides 15 and  16 related to the Public Health                                                                    
Division. She  pointed to row  60, which showed  that public                                                                    
health nursing  accounted for most  of the  division's staff                                                                    
who worked  in public  health centers.  Row 70  pertained to                                                                    
community   health   aide   programs  (CHAP)   grants;   the                                                                    
department had  successfully refinanced the funding  for the                                                                    
CHAPs grants  through Medicaid Services in  the current year                                                                    
- the  remaining funding in  the component made up  for what                                                                    
was left  of the  program area. She  noted that  the funding                                                                    
the department  had secured  through Medicaid  financing was                                                                    
100 percent federal.                                                                                                            
Ms.  O'Brien addressed  slide 17  pertaining  to Senior  and                                                                    
Disabilities  Services. Row  73 reflected  that most  of the                                                                    
division's  employees  were  housed  in  the  administrative                                                                    
services component,  which also included staff  who were not                                                                    
classified  as   administrative  in  nature.  Most   of  the                                                                    
employees  resided  in  the   component  for  efficiency  of                                                                    
managing the  division. Row 75 pertained  to community-based                                                                    
grants  for seniors  in their  homes; the  programs provided                                                                    
meals,  transportation,   and  low-cost  services   to  help                                                                    
maximize independence.                                                                                                          
1:49:29 PM                                                                                                                    
Ms. O'Brien turned  to slide 18 related  to the department's                                                                    
Support  Services  Division  (essentially  the  department's                                                                    
administrative  services  division).  Row 88  reflected  the                                                                    
division's    information     technology    (IT)    services                                                                    
organization  and  accounted  for  most  of  the  division's                                                                    
employees. She  detailed that IT  staffing would  move under                                                                    
the  new  Shared  Services initiative,  with  a  centralized                                                                    
information office  in FY 18.  There would be a  dotted line                                                                    
from DHSS  agency to the Department  of Administration (DOA)                                                                    
for the services.                                                                                                               
Ms.  O'Brien advanced  to slide  19  pertaining to  Medicaid                                                                    
Services.  Row 95  was behavioral  services and  row 96  was                                                                    
children's Medicaid  services, which had been  combined into                                                                    
row 95.  The services  had traditionally been  covered under                                                                    
children's  Medicaid services,  but were  largely behavioral                                                                    
health related;  therefore, they had been  combined into one                                                                    
component in FY  18. Row 97 was adult  preventative dental -                                                                    
the  funding  did  not represent  all  the  dental  services                                                                    
covered. Row  98 was  the largest  of the  Medicaid Services                                                                    
components and included all services  that did not fall into                                                                    
other   specified  categories.   Row  99   was  senior   and                                                                    
disabilities services.                                                                                                          
1:51:23 PM                                                                                                                    
Representative  Ortiz referred  to  slide 8  related to  the                                                                    
Pioneer Homes. He wondered what  level of cutbacks the homes                                                                    
had seen  over the  past couple  of years.  He asked  if the                                                                    
division  was  still  able  to meet  its  mission  based  on                                                                    
Commissioner  Davidson answered  that  the UGF  cuts to  the                                                                    
Alaska Pioneer Homes had been  9.8 percent or $3.678 million                                                                    
since FY  15. There had been  a total reduction of  23 full-                                                                    
time  positions (4  percent) since  2015.  The division  had                                                                    
reduced the number  of beds available for  Alaskans to enter                                                                    
the homes; it was in  the public interest to provide quality                                                                    
and safe  care in the  homes. As the state's  population was                                                                    
aging it  was common to  see higher  level of care  needs in                                                                    
the home  (including level 3  - the highest level  of care).                                                                    
It  was  challenging  to find  assisted  living  or  skilled                                                                    
nursing  facilities that  were able  or willing  to take  on                                                                    
individuals  experiencing dementia;  therefore, the  Pioneer                                                                    
Homes  had  become responsible  for  providing  most of  the                                                                    
dementia care in Alaska.                                                                                                        
Representative Ortiz asked  about the ever-increasing demand                                                                    
for the Pioneer Home services.                                                                                                  
Commissioner  Davidson  replied  that primarily  there  were                                                                    
longer wait  times. She  stated it was  important to  get on                                                                    
the  Pioneer  Home  wait  list  as  soon  as  eligible.  She                                                                    
elaborated  that individuals  had been  on the  waitlist for                                                                    
some time.  She detailed  a husband may  put himself  on the                                                                    
waitlist,  but the  wife may  not and  because they  were at                                                                    
different spots  it became difficult  later. The  demand for                                                                    
the waitlist continued to increase.                                                                                             
1:55:21 PM                                                                                                                    
Representative Grenn  pointed to slide  9, rows 6 and  8. He                                                                    
asked  about   the  increase  in  Alaskans   served  in  the                                                                    
categories  over  the  past  few  years.  He  asked  if  the                                                                    
increase had been gradual or steep.                                                                                             
Commissioner   Davidson  answered   that   with  regard   to                                                                    
behavioral health  treatment and recovery grants,  there had                                                                    
been  a rise  in the  number of  Alaskans needing  treatment                                                                    
services. Over  the past year  there had been  a significant                                                                    
rise  in the  number of  individuals struggling  with opioid                                                                    
addiction. She  referred to Governor Bill  Walker's State of                                                                    
the  State   address  that   highlighted  five   things  the                                                                    
administration would  do to target  the crisis.  She relayed                                                                    
that  the preceding  year the  legislature had  appropriated                                                                    
$11 million,  which had ended  up at $6 million  for grants.                                                                    
She  detailed  that the  recipients  had  been selected  and                                                                    
notifications would go out in the current week.                                                                                 
Commissioner Davidson continued to  answer the question. She                                                                    
spoke to  behavioral health in  general. The  department had                                                                    
been brutally  honest with  itself that  there were  gaps in                                                                    
its continuum  of care. She highlighted  that the department                                                                    
had focused  on behavioral  health improvement  the previous                                                                    
year  as part  of  its  SB 74  efforts.  The department  had                                                                    
worked  over  the  past year  with  stakeholders  throughout                                                                    
Alaska looking  at submitting a  [federal] 1115  waiver that                                                                    
would  redesign   the  state's  behavioral   health  system.                                                                    
Generally, when  states had gaps  in the continuum  of care,                                                                    
they saw impacts in other  areas. She elaborated that states                                                                    
saw  increases   in  emergency  room   (ER)  overutilization                                                                    
because  it was  the one  place  a person  could legally  go                                                                    
where they  could not  be turned  away. Individuals  went to                                                                    
the  ER  if  there  were  no  detox  or  treatment  services                                                                    
available. There were also  corresponding increases in rates                                                                    
of child  maltreatment and neglect. States  also experienced                                                                    
corresponding  encounters  with   police  or  public  safety                                                                    
officers  in  addition  to  an increase  in  the  number  of                                                                    
inmates.  Unfortunately, Alaska  had record  numbers in  all                                                                    
the  categories.  She  recognized  that a  redesign  of  the                                                                    
behavioral health system was in order.                                                                                          
Commissioner  Davidson continued  that DHSS  was negotiating                                                                    
with the federal Centers for  Medicare and Medicaid Services                                                                    
(CMS) to  submit an 1115  waiver that would do  five things:                                                                    
1) expand the state's  treatment capacity and improve access                                                                    
to  services;  2)  integrate care  among  primary  care  and                                                                    
behavioral health  to prevent individuals from  having to go                                                                    
multiple  places  for  treatment and  offering  services  in                                                                    
different settings  that would  allow the department  to use                                                                    
better social supports;  3) cost and outcomes  reform to get                                                                    
value for what the state  purchased; 4) provider payment and                                                                    
accountability; and 5) delivery  system reform. The requests                                                                    
for 1115  waivers were for  five-year periods that  could be                                                                    
renewed. The largest benefit was  that once approved by CMS,                                                                    
the state could amend it  to waive the IMD (Institutions for                                                                    
Mental  Disease)  that did  not  allow  providers of  16-bed                                                                    
facilities or more to bill  Medicaid for services, which had                                                                    
been challenging for Alaska.                                                                                                    
2:00:55 PM                                                                                                                    
Representative Guttenberg  addressed slide 8 related  to the                                                                    
Division  of Pioneer  Homes. He  spoke about  a request  for                                                                    
proposal (RFP)  for a  privatization study  that no  one had                                                                    
applied for. He asked for detail on the process.                                                                                
Commissioner  Davidson  answered  that  the  department  had                                                                    
twice  issued  an RFP  for  pharmaceutical  services in  the                                                                    
Pioneer Homes.  One applicant had responded  both times, but                                                                    
it did  not meet the  terms of the RFP.  Unfortunately, thus                                                                    
far there had  not been any successful  takers for providing                                                                    
pharmaceutical services in the Pioneer Homes.                                                                                   
Representative  Guttenberg  asked   what  would  happen.  He                                                                    
stated  there  was  a  statutory   request  to  provide  the                                                                    
services,  but   no  one  fulfilled  the   requirements.  He                                                                    
wondered if  the division had  a prescription  drug manager.                                                                    
He asked how prescriptions were currently delivered.                                                                            
Commissioner Davidson  answered that there was  a pharmacist                                                                    
position   that  oversaw   the   entire  Medicaid   program.                                                                    
Additionally, within  the Division  of Alaska  Pioneer Homes                                                                    
there  was a  pharmacist  and pharmacy  services that  could                                                                    
provide the benefit directly to the residents.                                                                                  
Representative Guttenberg wondered why  the state had missed                                                                    
out on a pharmaceutical  services contract. He wondered what                                                                    
was  missing or  if there  was a  deficiency in  the state's                                                                    
Commissioner  Davidson answered  that providing  the service                                                                    
was probably not as lucrative  as the state had thought. The                                                                    
cost of  purchasing and securing pharmaceuticals  was one of                                                                    
the largest increasing costs in  healthcare. The state could                                                                    
do  bulk purchasing  and to  participate in  rebate programs                                                                    
that may not be accessible to a private company.                                                                                
2:04:01 PM                                                                                                                    
Representative Tilton understood that  in one of the Pioneer                                                                    
Homes  the janitorial  and other  services were  put out  to                                                                    
contract to  save money. She  asked if the other  homes were                                                                    
considering the idea.                                                                                                           
VICKIE  WILSON, DIRECTOR,  ALASKA PIONEER  HOMES, DEPARTMENT                                                                    
OF HEALTH  AND SOCIAL  SERVICES, asked for  a repeat  of the                                                                    
Representative Tilton complied.                                                                                                 
Ms. Wilson replied that when the  home had been built in the                                                                    
1980s -  it had been  the last Pioneer  Home built -  it had                                                                    
been decided  to contract out  the services to  determine if                                                                    
there  was a  savings.  The employees  had  belonged to  the                                                                    
contractor  and over  the years  there had  been discussions                                                                    
about how much  savings there really were.  The division had                                                                    
considered contracting  services in other Pioneer  Homes and                                                                    
had started to review the issue.                                                                                                
Commissioner Davidson  elaborated that prior  to privatizing                                                                    
any   functions  currently   provided  by   state  employees                                                                    
required  a   feasibility  study  by  the   department.  She                                                                    
detailed  that  SB 74  had  included  a  provision to  do  a                                                                    
privatization  study  of  the   Alaska  Pioneer  Homes.  She                                                                    
elaborated  that an  amendment had  passed that  had limited                                                                    
the  privatization study  to pharmaceuticals.  She concluded                                                                    
that any  change to contract  services that  would otherwise                                                                    
be  provided  by a  state  employee  required a  feasibility                                                                    
study first.                                                                                                                    
2:07:36 PM                                                                                                                    
Co-Chair Seaton  believed the  RFP had  not been  to provide                                                                    
services  but   to  assess  the  possibility   of  providing                                                                    
services. He believed  the RFP had been for  a consultant to                                                                    
assess the feasibility of  providing services. Whereas there                                                                    
had been  pharmaceutical companies  offering to  provide the                                                                    
service under  the Medicaid and Medicare  reimbursement rate                                                                    
with no cost to  the state, but it was not  what the RFP had                                                                    
asked for. He  asked for the accuracy of  his statements. He                                                                    
asked for  verification that no  one had come forward  to do                                                                    
the assessment and feasibility study.                                                                                           
Commissioner Davidson replied in the affirmative.                                                                               
Co-Chair Seaton relayed there  were communications about the                                                                    
cost   savings  and   benefits   and  from   DHSS  and   the                                                                    
pharmaceutical company  Geneva Woods. The  information would                                                                    
be  provided to  the DHSS  budget subcommittee.  He reminded                                                                    
members  that the  committee was  currently  having a  high-                                                                    
level discussion. The goal was  to identify important issues                                                                    
for the finance subcommittee to work on.                                                                                        
Representative  Thompson  asked  what   kind  of  shape  the                                                                    
Pioneer  Homes were  in and  how  much deferred  maintenance                                                                    
Ms. Wilson answered  that the buildings were  aging, and the                                                                    
division had been lucky to  receive money it had been given.                                                                    
The Pioneer  Homes had dedicated maintenance  crews, but the                                                                    
buildings were  showing their  age (i.e.  roof replacements,                                                                    
major  components,  energy  efficiencies,  and  other).  The                                                                    
items  had all  been prioritized  in the  division's capital                                                                    
2:10:55 PM                                                                                                                    
Representative Thompson  remarked that Alaska was  taking on                                                                    
numerous optional  Medicaid programs. He asked  if they were                                                                    
saving the state money.                                                                                                         
Commissioner  Davidson answered  that the  optional services                                                                    
selected  did save  the  state money  in  the long-run.  For                                                                    
example,  prescriptions  were   an  optional  service  under                                                                    
Medicaid. Based  on the experience  of other states,  when a                                                                    
provider prescribed medication to  a patient and the patient                                                                    
did not  have the resources  to purchase the  medicine, they                                                                    
were   noncompliant.   It   took   just   a   few   Medicaid                                                                    
beneficiaries   (living   in    areas   outside   Anchorage,                                                                    
Fairbanks, or  Juneau) not taking their  high blood pressure                                                                    
prescriptions  who then  had a  stroke and  required Medivac                                                                    
service.    She    detailed   that    emergency    [medical]                                                                    
transportation  and  corresponding   in-patient  stays  were                                                                    
mandatory  services.  She  provided  an  additional  example                                                                    
related to  home and community-based services,  which was an                                                                    
optional service. She specified that  to be eligible for the                                                                    
services (activities  to help individuals with  daily living                                                                    
including bathing,  medicine compliance, chores,  and other)                                                                    
and  qualify  for a  waiver,  a  location  had to  meet  the                                                                    
nursing home level  of care, which was  a mandatory service.                                                                    
It  could be  offered as  an optional  service at  much less                                                                    
cost or  as a mandatory service  at a much higher  cost in a                                                                    
residential facility.                                                                                                           
2:13:17 PM                                                                                                                    
Representative  Thompson  asked  how much  state  money  was                                                                    
spent on  optional Medicaid programs.  Commissioner Davidson                                                                    
replied that she  would follow up with  the information. She                                                                    
specified that  the information was broken  down by optional                                                                    
Co-Chair  Seaton   asked  the  department  to   provide  the                                                                    
information  to   his  office   for  dissemination   to  the                                                                    
Representative  Kawasaki  asked  about the  closure  of  the                                                                    
Ketchikan  and  Nome  Youth  facilities.  He  asked  whether                                                                    
anticipated  savings  from  the  closure  of  the  Ketchikan                                                                    
facility had  been met. He  asked where the youths  would be                                                                    
moved who had been in the Nome facility.                                                                                        
Commissioner  Davidson  answered  that in  the  Division  of                                                                    
Juvenile Justice  the reductions  had been slightly  over $4                                                                    
million or  7 percent  since 2015.  The number  of full-time                                                                    
position reductions since  that time was 38  or 7.9 percent.                                                                    
The  Ketchikan Youth  Facility residents  had been  moved to                                                                    
Juneau. The  department anticipated  the youths in  the Nome                                                                    
facility would be transferred most likely to Anchorage.                                                                         
Co-Chair Foster  noted the subcommittee had  been working on                                                                    
the issue. He noted that the  issue had come up the previous                                                                    
year and  the subcommittee  wanted to revisit  the potential                                                                    
savings.  He  believed  there  would  be  studies  and  some                                                                    
questions asked  by the committee.  He stated there  was the                                                                    
possibility  the   savings  originally  projected   may  not                                                                    
warrant the facility's closure.                                                                                                 
2:16:19 PM                                                                                                                    
Representative Wilson asked how  the department measured the                                                                    
success  of  grants.  She  asked  what  the  providers  were                                                                    
required   to  submit   and  whether   the  department   had                                                                    
information  on  the  number   of  people  who  successfully                                                                    
completed the programs.                                                                                                         
Commissioner  Davidson asked  if  Representative Wilson  was                                                                    
referring to behavioral health grants.                                                                                          
Representative  Wilson  replied  she was  asking  about  all                                                                    
grants. She  noted that Commissioner Davidson  had testified                                                                    
that most  of the  grants went  to programs  (e.g. substance                                                                    
and  alcohol  abuse).  She  asked  what  was  required  from                                                                    
grantees. She  stated it  was not just  about the  number of                                                                    
people  the  programs  touched, but  about  people  who  had                                                                    
successfully  completed a  program.  She  explained that  as                                                                    
decrements  were  made,  she   wanted  to  ensure  the  best                                                                    
programs continued to run.                                                                                                      
Commissioner Davidson  answered that grantees  were required                                                                    
to submit data to the  department on their expenditures, the                                                                    
number  of clients  served, the  number of  clients who  had                                                                    
completed  programs,  and  other.  One of  the  reasons  the                                                                    
department  was interested  in  the  1115 behavioral  health                                                                    
redesign  was  to  change  the  dynamic  to  make  sure  the                                                                    
department could  improve the level  of services  allowed to                                                                    
be provided to Alaskans.                                                                                                        
Co-Chair Seaton  asked the department to  provide the charts                                                                    
showing the compliance and  completion rate for distribution                                                                    
to committee members.                                                                                                           
2:18:20 PM                                                                                                                    
Representative  Wilson referenced  the Office  of Children's                                                                    
Services  and Medicaid  expansion.  She  wondered about  the                                                                    
coverage provided  under expansion for  counseling, therapy,                                                                    
and drug  and alcohol  abuse treatment programs.  She stated                                                                    
that  before  Medicaid  expansion when  someone  lost  their                                                                    
children they  had lost all  their medical  benefits because                                                                    
the benefits  had been tied  to the children.  She continued                                                                    
that Medicaid  expansion was basically based  on income. She                                                                    
asked  what  portion of  the  services  were provided  under                                                                    
expansion that previously  would have been covered  by GF at                                                                    
some point.                                                                                                                     
Commissioner  Davidson  restated  her understanding  of  the                                                                    
question.  She believed  the question  was whether  having a                                                                    
child removed  from a home  increased the transition  from a                                                                    
parent needing services to Medicaid expansion.                                                                                  
Representative  Wilson  clarified  that  prior  to  Medicaid                                                                    
expansion if a  child was removed from a home,  the cost for                                                                    
medical  services  for the  parent  would  be paid  with  GF                                                                    
through  OCS  because Medicaid  would  no  longer cover  the                                                                    
expense.  She   believed  the  parents  would   qualify  for                                                                    
coverage  under  Medicaid  expansion. She  wondered  if  any                                                                    
savings had occurred  in OCS because the  counseling was now                                                                    
paid through Medicaid.                                                                                                          
Commissioner Davidson  replied the department  could provide                                                                    
the information to the committee.                                                                                               
Vice-Chair  Gara  referred to  slide  9.  He wondered  which                                                                    
programs had such long waiting  lists for treatment services                                                                    
that  people  fell   off  the  list  and   did  not  receive                                                                    
treatment.  He  gave  an example  of  an  alcoholic  waiting                                                                    
months for  treatment who  later decided  they did  not want                                                                    
treatment.  He  recalled  a past  children's  conference  in                                                                    
Alaska  where a  woman  had spoken  about  losing her  child                                                                    
because  she could  not care  for the  child. The  woman had                                                                    
waited  over six  months to  get into  a treatment  program.                                                                    
During that  time the state paid  $30 per day for  the child                                                                    
to  be  in  foster  care.  He relayed  that  the  woman  had                                                                    
ultimately made  it through treatment  after about  one year                                                                    
and  had  gotten   her  child  back.  He   wondered  if  the                                                                    
circumstances still existed.                                                                                                    
Commissioner Davidson  answered that there were  a number of                                                                    
Alaskans on  waitlists. There was not  a comprehensive list.                                                                    
She addressed areas with the  greatest need including opioid                                                                    
abuse.  Generally,  the  state  could  do  detox,  but  some                                                                    
communities had no  detox facilities. Once in  detox it kept                                                                    
individuals from  immediate danger of overdosing  on opioids                                                                    
or alcohol,  but the  question was  where people  went after                                                                    
detoxing. There was necessarily  a treatment bed accessible,                                                                    
which was a problem.                                                                                                            
Co-Chair Seaton  interjected the  question would have  to be                                                                    
addressed  during  the   subcommittee.  He  mentioned  other                                                                    
issues to  be addressed during the  subcommittee process. He                                                                    
stated that earlier in the week  he had provided DHSS with a                                                                    
2016 study  on Canada showing  a potential savings  of $21.5                                                                    
billion  via preventative  medicine.  He acknowledged  there                                                                    
were  35  million people  in  Canada  and about  750,000  in                                                                    
Alaska, which  equated to a  potential savings in  Alaska of                                                                    
about $458 million.  He had asked the  department to develop                                                                    
a plan  to address the issue.  He had also asked  for a plan                                                                    
to address the  high rates of autism  and preventable cases.                                                                    
He  wondered about  the costs  identified  in other  studies                                                                    
that  could be  saved  by changing  the  methodology of  how                                                                    
things  were   done.  He  appreciated  the   format  of  the                                                                    
2:24:37 PM                                                                                                                    
Commissioner  Davidson  added there  had  been  a couple  of                                                                    
other  feasibility studies  that DHSS  had been  tasked with                                                                    
over the  interim. The first, mentioned  earlier by Co-Chair                                                                    
Foster,  was the  Department  of  Juvenile Justice  facility                                                                    
privatization study.  The second  was the  API privatization                                                                    
study. She  relayed that both  reports would be  released on                                                                    
the coming Friday. The department  looked forward to working                                                                    
with the subcommittee on its budget in more detail.                                                                             
Co-Chair Seaton  believed subcommittees would be  looking to                                                                    
determine if there were local  matches for grants and at any                                                                    
other  ways  of generating  fees  from  private industry  or                                                                    
matching  locals  to  offset  costs.  He  relayed  that  the                                                                    
subcommittee process  was being  done with the  committee of                                                                    
jurisdiction; any statutory  changes the department believed                                                                    
would bring  efficiencies and reduce  costs would go  to the                                                                    
subcommittee  and   then  to  the  standing   committee  for                                                                    
potential introduction of legislation.                                                                                          
2:26:55 PM                                                                                                                    
AT EASE                                                                                                                         
2:32:18 PM                                                                                                                    
^FY 18 BUDGET OVERVIEWS: DEPARTMENT OF NATURAL RESOURCES                                                                      
Co-Chair Seaton invited the  Department of Natural Resources                                                                    
(DNR) to the table.                                                                                                             
2:32:38 PM                                                                                                                    
ANDY  MACK, COMMISSIONER,  DEPARTMENT OF  NATURAL RESOURCES,                                                                    
introduced   his   staff.    He   addressed   a   PowerPoint                                                                    
presentation titled  "State of Alaska Department  of Natural                                                                    
Resources  House  Finance  Overview"  (copy  on  file).  The                                                                    
department's mission statement was  to develop, conserve and                                                                    
maximize the  use of  Alaska's natural  resources consistent                                                                    
with  the  public interest.  The  department  had four  core                                                                    
services  and  division   measures:  1)  Foster  responsible                                                                    
commercial  development and  use of  state land  and natural                                                                    
resources,   consistent  with   the  public   interest,  for                                                                    
longterm  wealth  and  employment  (42  percent of  the  DNR                                                                    
budget);  2)  mitigate threat  to  the  public from  natural                                                                    
hazards by providing  comprehensive fire protection services                                                                    
on  state,   private  and   municipal  lands,   and  through                                                                    
identifying significant geologic hazards  (27 percent of the                                                                    
DNR budget);  3) provide  access to  state lands  for public                                                                    
and private  use, settlement, and recreation  (19 percent of                                                                    
the DNR  budget); and 4) ensure  sufficient data acquisition                                                                    
and assessment  of land and resources  to foster responsible                                                                    
resource  and community  development and  public safety  (11                                                                    
percent of the DNR budget).  The slide included links to the                                                                    
department's  constitutional authority  (Article VIII).  The                                                                    
full  budget was  located on  the Office  of Management  and                                                                    
Budget (OMB) website.                                                                                                           
2:35:34 PM                                                                                                                    
FABIENNE   PETER-CONTESSE,    SUPPORT   SERVICES   DIRECTOR,                                                                    
DEPARTMENT OF NATURAL  RESOURCES, addressed slides generated                                                                    
by  the  Legislative  Finance Division  (LFD)  beginning  on                                                                    
slide  3 titled  "Department of  Natural Resources  Share of                                                                    
Total  Agency  Operations:  GF  Only."  She  noted  that  GF                                                                    
included   both  unrestricted   general   funds  (UGF)   and                                                                    
designated  general  funds  (DGF).   The  department  had  a                                                                    
significant  amount of  DGF resulting  from fees  brought in                                                                    
for  material sales,  public use  cabins, Recorder's  Office                                                                    
fees, coal and mining leases,  and more. The department's GF                                                                    
budget  had  increased by  $5.5  million  over the  past  10                                                                    
years,  but  it  had  also experienced  a  UGF  decrease  of                                                                    
approximately $5.1  million over the same  period. She noted                                                                    
that DHSS  had mentioned  its high  budget in  FY 15  - many                                                                    
agencies realized  they had large  budgets during  that time                                                                    
when  the  state  had  money.  There  had  been  significant                                                                    
decreases in  the past three  years -  since FY 15,  DNR had                                                                    
decreased its UGF budget by $18.17 million or 24 percent.                                                                       
Ms. Peter-Contesse continued to  address slide 3 and pointed                                                                    
to a $10 million drop between  FY 15 and FY 16. She detailed                                                                    
that  AKLNG [Alaska  Liquid Natural  Gas  project] had  been                                                                    
categorized as UGF in FY  15 and "Other" or Instate Pipeline                                                                    
Fund  in FY  16. The  DNR  budget accounted  for about  1.94                                                                    
percent  of  the state's  overall  GF  budget. However,  for                                                                    
every UGF dollar appropriated to  DNR, the revenue generated                                                                    
by the  department to  the state's UGF  was about  $32 ($2.4                                                                    
billion  annually on  average  for the  past  10 years  from                                                                    
activities DNR helped facilitate).                                                                                              
2:38:12 PM                                                                                                                    
Ms.  Peter-Contesse reviewed  the chart  on slide  4 showing                                                                    
DNR line  items (all funds).  She noted line  items included                                                                    
personal  services,  travel, contractual,  commodities,  and                                                                    
more.  She  reported that  the  largest  agency expense  was                                                                    
personal services and accounted for  55 to 56 percent of the                                                                    
DNR  budget.  She  detailed  that  if  the  cost  of  living                                                                    
contractual  obligations   over  the  last  10   years  were                                                                    
removed,  the  personal  services budget  had  decreased  by                                                                    
approximately $12  million. In 2008 DNR  had 1,114 employees                                                                    
with an  average cost  of $67,000  per person.  The proposed                                                                    
budget included  905 employees (209  fewer) with  an average                                                                    
cost  of  $96,000.  Most  of  the increase  was  due  to  an                                                                    
increase in cost  of living and benefits.  She detailed that                                                                    
the issue was not that  state employees had necessarily been                                                                    
working that long, but by attrition it would average out.                                                                       
Ms. Peter-Contesse  highlighted that the cost  of employment                                                                    
- having employees  do the work - was  increasing. The other                                                                    
large  driver  was  contractual  services  for  things  like                                                                    
aircraft  charters  for  surveys, firefighting,  leases  and                                                                    
chargeback, litigation  support with the Department  of Law,                                                                    
contracts for appraisal services  in the Division of Mining,                                                                    
Land  and Water,  and other.  Travel expenses  represented a                                                                    
small slice  of the budget,  but with a focus  on decreasing                                                                    
travel, DNR  had decreased actual travel  dollars between FY                                                                    
14 and FY 16 by about 32 percent.                                                                                               
2:40:54 PM                                                                                                                    
Ms. Peter-Contesse  spoke to slide 5  titled "Appropriations                                                                    
within the  Department of Natural Resources  (GF Only)." The                                                                    
chart was  broken out  by RDU  (results delivery  unit). The                                                                    
first RDU  was fire  suppression, land and  water resources,                                                                    
which  included  the  Division   of  Forestry;  Division  of                                                                    
Mining, Land and  Water; and the Division  of Geological and                                                                    
Geophysical Surveys. There had been  an increase in FY 12/FY                                                                    
13  because of  increased  funding from  the legislature  to                                                                    
decrease  the permitting  backlog. She  highlighted a  large                                                                    
bump in the  oil and gas line on the  chart [shown in bright                                                                    
pink],  which reflected  funding  DNR had  received for  the                                                                    
Alaska Gasline Inducement  Act (AGIA). She pointed  to an FY                                                                    
15 increase  in the  administration and support  line [shown                                                                    
in navy]  for AKLNG. She  detailed that  in FY 15  AKLNG had                                                                    
been budgeted as  UGF, but it had been moved  to the "Other"                                                                    
funding category, which  resulted in a large drop  in the GF                                                                    
line  shown on  slide  5.  The lower  line  [shown in  aqua]                                                                    
representing agriculture showed a drop  in FY 18 of about $2                                                                    
million for the Mount McKinley Meat and Sausage Plant.                                                                          
Ms.   Peter-Contesse  moved   to  slide   6,  which   showed                                                                    
appropriations  within DNR  (all funds).  The top  line, the                                                                    
fire  suppression, land  and water  resources RDU  [shown in                                                                    
green] included an increase in  federal dollars in the FY 17                                                                    
and FY 18 budgets - most  of the dollars were being received                                                                    
by the  Division of Forestry, Forest  Management for Tongass                                                                    
young  growth cost-share  agreements,  and forest  inventory                                                                    
and analysis.                                                                                                                   
Co-Chair  Seaton asked  which  line  Ms. Peter-Contesse  was                                                                    
referring to.  Ms. Peter-Contesse pointed to  the green line                                                                    
at the  top of the  chart on slide  6 and specified  she was                                                                    
speaking to FY 17 and FY 18.                                                                                                    
Ms. Peter-Contesse  moved on to  slide 7  titled "Department                                                                    
of Natural Resources Total Funding  Comparison by Fund Group                                                                    
(All  Funds)."  The  department   had  reduced  its  UGF  by                                                                    
approximately  $5.1  million since  FY  08  and about  $18.7                                                                    
million since  FY 15. There had  been an increase in  DGF of                                                                    
about $10.6  million over the  past 10 years.  She explained                                                                    
that  DNR had  tried to  increase  reliance on  the fees  it                                                                    
generated  and  revenue it  collected  and  to decrease  its                                                                    
reliance on  UGF. In some cases,  it meant there had  been a                                                                    
fund source change  (a one-for-one between UGF  and DGF) and                                                                    
in other  cases it had been  an increase in fees  in various                                                                    
areas. had been an increase  in fees in various areas. There                                                                    
was  about $6  million in  fund source  changes since  2016;                                                                    
about $1 million  of the amount was from new  fees and about                                                                    
$5  million   was  from  existing  fees   collected  by  the                                                                    
department beyond what DNR was authorized.                                                                                      
2:44:49 PM                                                                                                                    
Vice-Chair   Gara   asked   about  fees.   He   stated   the                                                                    
constitution specified the state  should receive the maximum                                                                    
benefit for  its resources. He  noted that there  was debate                                                                    
on whether  the state was doing  that on oil and  mining. He                                                                    
remarked that the  state taxed those things.  He thought the                                                                    
state may  not be doing  anything other than  covering costs                                                                    
on many resources.  He spoke to timber as  an example, which                                                                    
was  not  a  high  profit  margin  area  and  represented  a                                                                    
shrinking   industry.  He   asked  if   the  state   charged                                                                    
permitting fees on timber that exceeded the state's costs.                                                                      
Ms. Peter-Contesse deferred the question to a colleague.                                                                        
ED  FOGELS,  DEPUTY   COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES,  answered  all  the  revenue  generated  off  the                                                                    
timber  sales went  into a  timber sale  account, which  was                                                                    
used  by  the  division  to staff  people  to  continue  the                                                                    
program. He elaborated that  timber sale receipts maintained                                                                    
and kept  the program  going. The  real economic  benefit to                                                                    
the timber  sales was to the  30 or so businesses  in Alaska                                                                    
that utilized timber for the private sector.                                                                                    
Vice-Chair Gara  clarified he was not  implying there should                                                                    
be a  higher fee, he did  not know. He noted  that the state                                                                    
had oil, gas, and mining  that it hopefully made excess over                                                                    
its costs.  He asked if  there were other  resources managed                                                                    
by the  state where the  state received its costs  back, but                                                                    
no additional revenue.                                                                                                          
Mr.  Fogels  answered  that  even  within  the  Division  of                                                                    
Mining, Land  and Water,  substantial revenues  were brought                                                                    
in  from  a  large  variety of  sectors.  He  detailed  that                                                                    
material  sales  brought  in significant  revenue,  part  of                                                                    
which went back  to managing the program and  a portion went                                                                    
into  GF.  He  thought  laying  out  the  different  revenue                                                                    
streams within DNR, where they  went, and how much came back                                                                    
to the  department, would  be a good  topic for  the finance                                                                    
2:47:53 PM                                                                                                                    
Representative  Ortiz  asked  for   detail  about  the  term                                                                    
"material sales."                                                                                                               
Mr.  Fogels replied  that material  sales included  sand and                                                                    
gravel,  rock,  and  aggregate sales  (anything  mining  the                                                                    
surface of the state, not the subsurface minerals).                                                                             
Representative Grenn referenced  the department's mention of                                                                    
increases  to a  number  of  fees. He  asked  if there  were                                                                    
places  the department  anticipated increasing  fees in  the                                                                    
next year.                                                                                                                      
Commissioner  Mack answered  that  the  department had  been                                                                    
developing a  comprehensive regulation  fee package;  it was                                                                    
currently looking  at all  fees charged by  DNR and  had put                                                                    
substantial resources  into the development of  the package.                                                                    
The department  believed it updated  and brought  into focus                                                                    
what constituted  a reasonable  fee. In many  cases brackets                                                                    
were  being  established  -  there  would  be  a  regulation                                                                    
specifying  the minimum  and maximum  fee for  a service  or                                                                    
product.  He referenced  an earlier  question by  Vice-Chair                                                                    
Gara  and relayed  that the  department  also managed  fresh                                                                    
water.  The  comprehensive package  was  in  draft form  and                                                                    
would be out for public comment soon.                                                                                           
Co-Chair  Seaton asked  if  any of  the  fees would  require                                                                    
statutory  change. Commissioner  Mack answered  that it  was                                                                    
possible.  He detailed  it was  currently  a regulation  fee                                                                    
Co-Chair  Seaton  communicated  that the  department  should                                                                    
take  the  issue up  with  the  subcommittee if  there  were                                                                    
statutory fees needing adjustment.                                                                                              
2:50:19 PM                                                                                                                    
Representative Tilton  referred to  the permit  backlog. She                                                                    
asked  for a  status update  on the  backlog and  guessed it                                                                    
pertained to leased lands.                                                                                                      
Commissioner Mack answered that  several years earlier there                                                                    
had been  a backlog of up  to 2,500 permits in  the Division                                                                    
of Mining,  Land and Water.  Money had been  appropriated by                                                                    
the legislature  to help update,  modify, and  modernize the                                                                    
system. Subsequently,  the backlog  had been reduced  to the                                                                    
850  to 900  range.  The department  wanted  to continue  to                                                                    
reduce the number.                                                                                                              
Mr. Fogels added the backlog  had been reduced by over 1,700                                                                    
or 64 percent since it  had started the backlog project. The                                                                    
department was slowing its work on  the backlog a bit due to                                                                    
budget  cuts, but  it was  also  gaining efficiencies.  They                                                                    
would address  a unified permitting project  in the division                                                                    
that he would speak to  later in the presentation, which had                                                                    
helped dramatically.                                                                                                            
Representative Kawasaki referred  to the permitting backlog.                                                                    
He stated  it was  not only about  the number  of backlogged                                                                    
permits, but  the length of  time the permit  existed within                                                                    
the queue. He asked the  department to include the detail in                                                                    
its report to the subcommittee.                                                                                                 
2:52:36 PM                                                                                                                    
Mr.  Fogels reported  that DNR  had a  total of  68 programs                                                                    
within all its  divisions. He noted that  the department had                                                                    
spent significant time  on including data for  the number of                                                                    
Alaskans  served  and   the  efficiencies;  the  information                                                                    
included in the tables [slides  8 through 16] was a starting                                                                    
point for discussion. He explained  it was difficult to nail                                                                    
the numbers down - the  department looked forward to working                                                                    
with  the  subcommittee to  further  hone  the metrics.  The                                                                    
department  was  also  preparing  a program  guide  for  the                                                                    
subcommittee that  would list every  program, its  cost, the                                                                    
number of staff, and other.                                                                                                     
Mr.  Fogels addressed  slide 8  related to  the Division  of                                                                    
Agriculture.  The division  had  a total  of eight  programs                                                                    
with a total budget of  $4.8 million ($2.67 million UGF) and                                                                    
34  staff.  He  detailed  that  the  division  had  a  plant                                                                    
materials  center  [in  Palmer] that  produced  foundational                                                                    
seed  for  the  state.  The division  also  had  inspection,                                                                    
marketing, and  land sales components. The  governor's FY 18                                                                    
budget included a  proposal to cut one position  for a total                                                                    
of  $132,000.  He relayed  the  plant  materials center  had                                                                    
received  a  one-time  increment of  $335,000  the  previous                                                                    
fiscal  year with  instructions to  see if  DNR could  raise                                                                    
fees to cover  the costs of seed  production. The department                                                                    
was  asking for  the restoration  of the  one-time increment                                                                    
because  after  consideration  it  did  not  believe  a  fee                                                                    
increase was feasible in the  program. He offered to address                                                                    
the issue in further detail with the subcommittee.                                                                              
Mr. Fogels  moved to slide  9 and addressed the  Division of                                                                    
Mining,  Land and  Water. The  division  had a  total of  14                                                                    
programs  with  a  total budget  of  $27.28  million  ($6.11                                                                    
million  UGF)  and  207  staff;   it  was  the  department's                                                                    
foundational  division, which  was  responsible for  getting                                                                    
the statehood  land entitlement for the  federal government,                                                                    
managing the  land, managing all waters,  and reclamation of                                                                    
mines on  all lands. Cuts  in the governor's proposed  FY 18                                                                    
budget totaled $535,000. The department  planned to cut back                                                                    
on  some active  management  of state  lands  in the  Denali                                                                    
block  area, consolidate  some  leases, consolidate  mapping                                                                    
staff  (DNR was  looking at  an initiative  to increase  the                                                                    
efficiency  of its  mapping functions),  and  to reduce  the                                                                    
municipal entitlements program by one staff person.                                                                             
Mr. Fogels discussed that additionally,  DNR would request a                                                                    
change related to the [permit]  backlog project. He detailed                                                                    
the department's  unified permitting  project with  the goal                                                                    
of automating permitting had been  very successful (a series                                                                    
of   capital  requests   had   been   appropriated  by   the                                                                    
legislature  over  the  years).  The  department  wanted  to                                                                    
transition  the project  to  an operational  base  - it  had                                                                    
automated some  of the  key authorizations  done by  DNR and                                                                    
there  was much  more  to automate.  The division  performed                                                                    
dozens upon  dozens of different authorizations  that needed                                                                    
to be addressed separately.  Therefore, the department would                                                                    
be asking for a switch from capital funds to DGF.                                                                               
2:57:37 PM                                                                                                                    
Mr. Fogels discussed  the Division of Forestry  on slide 10.                                                                    
The  division had  a total  of  nine programs  with a  total                                                                    
budget  of  $45.68  million ($24.23  million  UGF)  and  238                                                                    
staff.  The   budget  was  the  largest   of  any  division,                                                                    
primarily  due to  wildland  firefighting. The  firefighting                                                                    
costs from  the previous summer,  which had been a  low fire                                                                    
year at about  half a million acres,  cost approximately $26                                                                    
million (the department was still  cross billing the federal                                                                    
government).   The  other   division  function   was  forest                                                                    
management, which accounted for a  very small portion of the                                                                    
budget. There were  no proposed cuts to the  division in the                                                                    
governor's FY 18 budget.                                                                                                        
Mr. Fogels  addressed the Office  of Project  Management and                                                                    
Permitting on slide 11. The  office had five programs with a                                                                    
total budget of  $7.07 million ($840,000 UGF)  and 14 staff.                                                                    
The primary  function of  the office  was to  coordinate the                                                                    
permitting  of large  resource  development projects,  which                                                                    
created  its own  funding stream  and program  receipts from                                                                    
project   applicants  that   reimbursed  all   state  agency                                                                    
permitting  costs   (i.e.  Department  of  Fish   and  Game,                                                                    
Department  of  Environmental  Conservation,  Department  of                                                                    
Health  and Social  Services,  Department of  Transportation                                                                    
and Public  Facilities, and Department  of Law).  There were                                                                    
no  proposed cuts  to the  office  in the  governor's FY  18                                                                    
Mr. Fogels  moved to slide 12  and spoke to the  Division of                                                                    
Parks and Outdoor Recreation. The  division had six programs                                                                    
with a  total budget of  $15.79 million ($2.41  million UGF)                                                                    
and  165 staff.  The  lion's  share of  the  budget went  to                                                                    
maintaining parks and keeping them  safe for the public. The                                                                    
governor's proposed  FY 18 budget would  cut $328,000, which                                                                    
would mean some parks would  be placed in passive management                                                                    
including  Delta Junction  and Donnelly  Dome. The  division                                                                    
was actively seeking  to reduce its dependence  on UGF; with                                                                    
another fee increase  it should be about  half fee-based for                                                                    
the  entire parks  operations.  He  referred to  legislation                                                                    
passed  the previous  year that  allowed  the department  to                                                                    
sell retail items  in parks - the profit would  go back into                                                                    
parks.  He believed  it would  be very  successful, and  the                                                                    
department hoped to  close the rest of the gap  to get parks                                                                    
totally off GF at some point in the future.                                                                                     
3:00:46 PM                                                                                                                    
Co-Chair Seaton  mentioned recovered  fees. He asked  DNR to                                                                    
provide  the  subcommittee  with estimated  percentages  the                                                                    
department   anticipated   recovering  in   the   regulation                                                                    
Ms.  Peter-Contesse   addressed  the  Division   of  Support                                                                    
Services  on slide  13.  The  division included  information                                                                    
technology (IT),  which was responsible for  desktop support                                                                    
and  infrastructure, in  addition  to  managing state  lands                                                                    
records and providing GIS mapping  services for DNR and many                                                                    
other  agencies. The  division  also  housed the  Recorder's                                                                    
Office uniform commercial  code, provided recording services                                                                    
for the  state and  held the official  public record  of the                                                                    
state. The  final component was the  administrative services                                                                    
group  responsible  for   budget,  accounting,  and  revenue                                                                    
management  for DNR.  The governor's  proposed FY  18 budget                                                                    
reduced  the  Recorder's  Office by  $750,000,  which  would                                                                    
eliminate  four positions,  but would  not result  in office                                                                    
closures. She relayed  that services to the  public would be                                                                    
maintained and revenue  would not be reduced.  She noted the                                                                    
department was continuing a  consolidation of the Recorder's                                                                    
Offices around  the state. She concluded  that the reduction                                                                    
would not negatively impact UGF.                                                                                                
Mr.  Fogels   briefly  highlighted  other   department  wide                                                                    
components on slide 14  including the Commissioner's Office,                                                                    
the Public  Information Center, and the  Mental Health Trust                                                                    
Land  Office. There  were no  cuts  proposed to  any of  the                                                                    
programs in the governor's FY 18 budget.                                                                                        
Representative  Guttenberg  noted  the Mental  Health  Trust                                                                    
Land Office  put out  an RFP that  would be  explored during                                                                    
the subcommittee process.                                                                                                       
3:03:47 PM                                                                                                                    
MARK  WIGGIN,  DEPUTY  COMMISSIONER, DEPARTMENT  OF  NATURAL                                                                    
RESOURCES, spoke  to the  Division of Oil  and Gas  on slide                                                                    
15. The  division had nine  sections with a total  budget of                                                                    
approximately $20.9  million and  101 staff. He  relayed the                                                                    
division was  responsible for  the day-to-day  management of                                                                    
lease  operations  for oil  and  gas  and geothermal  assets                                                                    
throughout the state.  There was a proposed  FY 18 reduction                                                                    
of six  PCNs (position control  number) for a  total savings                                                                    
of $870,000 reduction (10 percent).                                                                                             
Mr.  Wiggin   addressed  the  Division  of   Geological  and                                                                    
Geophysical  Surveys  on  slide 16.  The  division  provided                                                                    
science,  studies, and  fieldwork to  support oil,  gas, and                                                                    
mineral  exploration  throughout  Alaska;  it  provided  the                                                                    
feedstock  for industry  to develop  oil and  gas and  other                                                                    
resources.  The division  had  a total  UGF  budget of  $8.3                                                                    
million and approximately 47  positions. The budget proposed                                                                    
a reduction  of two PCNs  in FY 18  for a total  of $486,000                                                                    
(11  percent).   There  were   seven  sections   within  the                                                                    
division.   He  referred   to  discussion   about  the   fee                                                                    
structures.   The  division   also   managed  the   Geologic                                                                    
Materials Center  in Anchorage  that handled the  core, oil,                                                                    
and mining samples.  The division would also be  part of the                                                                    
distribution of seismic data that  would be released as part                                                                    
of the  capital credit  system. The  division would  put the                                                                    
infrastructure computer servers at  the center for handling.                                                                    
The fees would  be part of the regulation  package and there                                                                    
may also be statutory changes required.                                                                                         
3:06:39 PM                                                                                                                    
Representative  Ortiz referred  to the  Division of  Oil and                                                                    
Gas on  slide 15 and  asked about  the function of  the nine                                                                    
audit positions.                                                                                                                
Mr. Wiggin  answered that audits were  on royalty submittals                                                                    
paid by the industry through DNR.                                                                                               
Representative Kawasaki  wondered how  it differed  from the                                                                    
tax  audits performed  by the  Department of  Revenue (DOR).                                                                    
Mr. Wiggin did  not know how the process differed  - one was                                                                    
tax,  and   another  was  royalties.  He   deferred  to  the                                                                    
commissioner for further detail.                                                                                                
Commissioner  Mack answered  that  severance and  production                                                                    
tax was collected by DOR,  while royalty was calculated as a                                                                    
function  of  each of  the  individual  leases. The  revenue                                                                    
sources  were handled  separately, and  royalty calculations                                                                    
were handled  by DNR. Ultimately,  if someone had  a dispute                                                                    
it  was  appealed to  the  commissioner's  office and  could                                                                    
eventually end up in court if not solved.                                                                                       
Representative Kawasaki  would follow  up later.  He pointed                                                                    
to slide  12 related  to the Division  of Parks  and Outdoor                                                                    
Recreation.  He  spoke  about  the  Office  of  History  and                                                                    
Archaeology  and   believed  many  of  the   functions  were                                                                    
supported by other  agencies. He did not  know a significant                                                                    
amount about the office.                                                                                                        
Co-Chair  Seaton  noted  there  could be  follow  up  during                                                                    
subcommittee later.                                                                                                             
Vice-Chair Gara stated  that DOR calculated taxes  on oil on                                                                    
sometimes on  the gross  and sometimes  on net.  He remarked                                                                    
that DNR calculated  royalty on gross. He  wondered if there                                                                    
was  efficiency in  combining the  functions. He  speculated                                                                    
that  the   same  people  calculating   the  gross   on  the                                                                    
production tax could calculate it on the royalty.                                                                               
3:09:48 PM                                                                                                                    
Commissioner Mack answered there may  be. He would follow up                                                                    
with an answer. He detailed  that the royalty was a function                                                                    
of  the  lease  terms.  He continued  that  sometimes  other                                                                    
issues  involved  business  expenses and  other  issues  not                                                                    
necessarily taken up by DNR.                                                                                                    
Vice-Chair  Gara   asked  the  department  to   provide  the                                                                    
information to the subcommittee chair.                                                                                          
^PRESENTATION:   A    SUSTAINABLE   SOLUTION    FOR   ALASKA                                                                  
DESTINATION   MARKETING  FUNDING:   A  TOURISM   IMPROVEMENT                                                                  
DISTRICT MODEL                                                                                                                
3:11:11 PM                                                                                                                    
SARAH  LEONARD,  PRESIDENT   AND  CHIEF  EXECUTIVE  OFFICER,                                                                    
ALASKA  TRAVEL   INDUSTRY  ASSOCIATION   (ATIA),  introduced                                                                    
COLLEEN STEPHENS,  STAN STEPHENS GLACIER &  WILDLIFE CRUISES                                                                    
AND  MEMBER  OF  THE  ATIA BOARD  OF  DIRECTORS,  introduced                                                                    
JOHN  LAMBETH,   PRESIDENT  AND  CHIEF   EXECUTIVE  OFFICER,                                                                    
CIVITAS, introduced himself  and relayed Civitas specialized                                                                    
in  working with  destinations on  stable tourism  promotion                                                                    
Ms.  Leonard  provided   a  PowerPoint  presentation  titled                                                                    
"Alaska House Finance Committee:  A Sustainable Solution for                                                                    
Alaska Destination Marketing  Funding: A Tourism Improvement                                                                    
District Model" dated  January 24, 2017 (copy  on file). She                                                                    
read from a prepared statement:                                                                                                 
     I'm  here  to  share  with you  a  tourism  improvement                                                                    
     district  model for  statewide  tourism  promotion -  a                                                                    
     concept ATIA,  along with the Alaska  Tourism Marketing                                                                    
     Board,  the  guiding  board  for  Alaska's  destination                                                                    
     marketing  program  -  is  sharing  with  industry  and                                                                    
     legislative leaders.                                                                                                       
     We've  come to  Juneau many  times seeking  the state's                                                                    
     investment in tourism marketing  and today we recognize                                                                    
     a new reality  as we along with every  Alaskan know you                                                                    
     are  facing very  difficult  decisions  in this  fiscal                                                                    
Ms.  Leonard relayed  her  intent to  briefly  speak to  the                                                                    
status of the  marketing program. She would turn  it over to                                                                    
Mr.  Lambeth  to speak  in  more  detail about  the  tourism                                                                    
improvement district model.                                                                                                     
Co-Chair Seaton  noted Representative Pruitt had  joined the                                                                    
Ms. Leonard continued to read from a statement:                                                                                 
     During the  last legislative session and  following the                                                                    
     governor's vetoes,  the tourism marketing  funding from                                                                    
     the  state  was  reduced  from  $4.5  million  to  $1.5                                                                    
     million.  As  legislative  leaders  you  also  included                                                                    
     language in  the budget requiring the  tourism industry                                                                    
     to come back  to you with a plan to  reduce reliance on                                                                    
     state general funds.                                                                                                       
Ms.  Leonard  pointed to  slide  2  that showed  the  intent                                                                    
language  from the  budget the  previous  year. She  briefly                                                                    
highlighted  slide  3  that included  a  graph  showing  the                                                                    
decrease in  state investment  in tourism  marketing funding                                                                    
from 2013 to  2017. She turned to a bubble  chart on slide 4                                                                    
related to  economic impacts. The  chart showed a  circle of                                                                    
benefits  illustrating why  the  tourism marketing  industry                                                                    
believed tourism marketing investment  worked. She read from                                                                    
a prepared statement:                                                                                                           
     With smart investments  industry is attracting millions                                                                    
     of  visitors to  Alaska,  they are  spending almost  $2                                                                    
     billion with local businesses  and in communities. This                                                                    
     is  creating  opportunities  for  business  growth  and                                                                    
     adding  jobs   and  visitors  are   generating  revenue                                                                    
     through  various taxes  and fees,  which support  local                                                                    
     and borough  budgets to  the tune  of over  $80 million                                                                    
     supporting community services and  to the state General                                                                    
     Fund in over $100 million.                                                                                                 
     This positive circle has produced  health results as we                                                                    
     have  seen  your  past support  for  tourism  marketing                                                                    
     dollars.  The  economic  impacts in  Alaska  have  been                                                                    
     tremendous, producing jobs, over  $4 billion in overall                                                                    
     economic  activity,  and  millions of  dollars  to  the                                                                    
     state's General  Fund, as well  as revenue to  city and                                                                    
     borough budgets.                                                                                                           
3:14:41 PM                                                                                                                    
Ms. Leonard turned to slide 5 and 6 and read from a                                                                             
     When visitors  come to Alaska they're  also spending on                                                                    
     various businesses  and activities  from transportation                                                                    
     to gifts and souvenirs.                                                                                                    
     The $1.5  million appropriation for this  fiscal year -                                                                    
     and there's $3 million  currently in the capital budget                                                                    
     -  are  significant  declines   from  years  past  when                                                                    
     marketing  funding levels  reached into  the $10,  $16,                                                                    
     $18 million  range. This graph  shows that  our funding                                                                    
     today falls  well below states like  Arizona, Virginia,                                                                    
     Arkansas, as  well as destination in  Canada. The light                                                                    
     green  graph   also  shows   that  as   our  competitor                                                                    
     destinations  are  increasing their  tourism  promotion                                                                    
     budgets, Alaska's budget is decreasing.                                                                                    
     While we  compete with many  other U.S.  states, Alaska                                                                    
     also competes on an international  scale as a long-haul                                                                    
     exotic   and  safe   destination.  Alaska's   marketing                                                                    
     strategies have  focused on these attributes.  It takes                                                                    
     a  couple  of  years   in  the  marketplace  for  these                                                                    
     marketing strategies  to bring  returns and  to realize                                                                    
     the economic benefits I just talked about.                                                                                 
     As   we  experienced   reduced  destination   marketing                                                                    
     dollars  we fear  we will  start to  see the  impact of                                                                    
     fewer  visitor numbers,  less  spending, less  economic                                                                    
     impact in 2018, 2019, and beyond.                                                                                          
3:16:03 PM                                                                                                                    
Ms. Leonard addressed slides 7 through 11 and continued to                                                                      
address prepared remarks:                                                                                                       
     This year we are  implementing a $1.5 million marketing                                                                    
     program,  a very  basic  program on  page  7. I'm  just                                                                    
     going  to mention  briefly what  we aren't  able to  do                                                                    
     anymore  with those  limited  resources.  We've had  to                                                                    
     shut down five overseas offices  and for the first time                                                                    
     in 27  years we  do not  have representation  in German                                                                    
     speaking Europe,  one of our top  international visitor                                                                    
     The national  advertising program has  essentially been                                                                    
     eliminated.  To put  it in  perspective, in  years past                                                                    
     we've  had  $5  million  worth of  advertising  in  the                                                                    
     marketplace. With only a fraction  of that available to                                                                    
     us now we  can no longer afford  any print advertising.                                                                    
     There are  zero ads  in magazines and  we have  no more                                                                    
     direct mail  program. These were both  highly effective                                                                    
     ways  of getting  people to  choose Alaska  and request                                                                    
     the state vacation planner (on page 9).                                                                                    
     For the  first time  in 40 years  Alaska will  not have                                                                    
     its  own  trip  planning  publication  full  of  Alaska                                                                    
     business  ads. Last  year we  distributed over  400,000                                                                    
     planners.   People   won't   just   be   seeing   other                                                                    
     destination guides  - almost  every other state  in the                                                                    
     United States has a printed  vacation planner as a main                                                                    
     printed tool to attract visitors to their destination.                                                                     
     We also  don't have any television  advertising. For me                                                                    
     and  many of  you this  is a  great inspirational  tool                                                                    
     around   the   world   to  attract   people   to   your                                                                    
     destination. What  we are  doing is  trying to  be very                                                                    
     efficient and  effective with  the $1.5  million budget                                                                    
     and  implementing a  program focused  on digital  media                                                                    
     strategies, public  relations, and a core  travel trade                                                                    
     One of the many questions  we have heard and have often                                                                    
     asked  ourselves:  what is  the  value  of a  statewide                                                                    
     tourism  destination  program?  [page 11].  We  started                                                                    
     looking  around  the country  at  case  studies -  what                                                                    
     happens  in other  destinations  when governments  have                                                                    
     reduced   or   eliminated   their   statewide   tourism                                                                    
     marketing  funding.  In  1993 Colorado  repealed  their                                                                    
     tourism funding  and within two  years lost  30 percent                                                                    
     of its U.S. visitor  market share. Conversely, during a                                                                    
     recession,   Michigan  doubled   their  state   tourism                                                                    
     marketing funding, and from 2006  to 2014 - those of us                                                                    
     in  the  tourism industry  recognize  it  was an  award                                                                    
     winning  pure-Michigan campaign  to attract  visitors -                                                                    
     generated $6.6 billion in visitor spending.                                                                                
3:18:35 PM                                                                                                                    
Ms. Leonard addressed slides 12 and 13 and continued to                                                                         
address prepared remarks:                                                                                                       
     In  2010, Connecticut  eliminated their  entire tourism                                                                    
     marketing budget  and their travel-related  tax revenue                                                                    
     growth  slowed to  half the  pace during  slow economic                                                                    
     times of 2009  and 2010. In 2011,  Washington shut down                                                                    
     their tourism  office. They  saw competing  states like                                                                    
     Montana increase tourism  promotion budgets and capture                                                                    
     increased    visitor    spending.    The    state    of                                                                    
     Pennsylvania's  tourism  funding  declined  77  percent                                                                    
     from 2008 to  2015 (page 13). They projected  a loss of                                                                    
     $600  million  in  state and  local  tax  revenue  that                                                                    
     travelers would  have generated.  In 2013, the  City of                                                                    
     San  Diego  held  off  on  tourism  promotion  funding.                                                                    
     During  that time,  they held  off on  allocating their                                                                    
     promotion  funding,  they  projected  a  loss  of  $560                                                                    
     million  in lost  visitor spending  and $24  million in                                                                    
     reduced tax revenues.                                                                                                      
Ms. Leonard spoke to slide 14 with prepared remarks:                                                                            
     The  ATIA  board  of directors  held  several  meetings                                                                    
     since   March    (the   last    legislative   session),                                                                    
     researching  and discussing  different revenue  options                                                                    
     as we  worked to  meet the  legislative mandate,  so we                                                                    
     could  come back  to you  with a  plan for  sustainable                                                                    
     tourism  marketing  funding  as you  asked.  They  kept                                                                    
     these  principles in  mind -  any new  funding solution                                                                    
     must be broad-based and not  reliant on one industry or                                                                    
     funding  source.  Revenue  should  focus  primarily  on                                                                    
     visitor  activity with  less  impact  on Alaskans.  Any                                                                    
     successful  plan  would be  a  package  of new  revenue                                                                    
     assessing  tourism  related businesses,  assessing  our                                                                    
     own industry,  and packaged  with the  existing vehicle                                                                    
     rental  car tax  collected, which  can be  allocated to                                                                    
     tourism promotion  dollars -  there's language  in that                                                                    
     existing statute.                                                                                                          
     These  conversations  gravitated   to  the  concept  of                                                                    
     tourism  improvement   districts.  Tourism  improvement                                                                    
     districts (TIDs)  have occurred around the  country, at                                                                    
     local  or   regional  levels,  and  most   recently  in                                                                    
     California at a statewide level.                                                                                           
3:20:37 PM                                                                                                                    
Ms. Leonard turned  the presentation over to  Mr. Lambeth to                                                                    
provide more detail on TIDs.                                                                                                    
Vice-Chair   Gara   thanked   Ms.  Leonard   for   providing                                                                    
information  whenever he  had requested  it.  He noted  that                                                                    
tourism  funding  from  the state  had  decreased  over  the                                                                    
years. He  asked if visitors  to the state had  decreased as                                                                    
well.  Alternatively, he  wondered if  tourism had  remained                                                                    
stable or increased.                                                                                                            
Ms. Leonard  answered the state  was seeing past  results of                                                                    
healthy  tourism  budgets.  The state  was  seeing  positive                                                                    
economic benefit and increased tourism  in 2016 and 2015 had                                                                    
been a  record year. However,  the agency was  worried about                                                                    
being  the next  case study.  The association  did not  know                                                                    
when  reductions  would  begin   to  impact  the  number  of                                                                    
tourists visiting Alaska and money coming into the state.                                                                       
Vice-Chair Gara  discussed the state's  corporate tax  for C                                                                    
corporations (a  publicly traded corporation) and  a vehicle                                                                    
rental  tax,  but tourism  companies  that  did not  fit  in                                                                    
either of the  categories did not pay any  state revenue. He                                                                    
asked if he was accurate.                                                                                                       
Ms.  Leonard  replied that  the  visitor  industry paid  bed                                                                    
taxes  in  different  communities,   but  the  tax  was  not                                                                    
statewide. The agency  attributed visitor activity impacting                                                                    
fees  like Department  of Fish  and  Game licenses,  hunting                                                                    
fees,  the Alaska  Marine Highway  System, state  park fees,                                                                    
and other things that attracted visitors.                                                                                       
3:22:46 PM                                                                                                                    
Mr.  Lambeth  addressed  a  PowerPoint  presentation  titled                                                                    
"Alaska Travel and Tourism Marketing  Act" dated January 24,                                                                    
2017   (copy   on   file)  [note:   the   presentation   was                                                                    
incorporated with  the ATIA presentation and  began on slide                                                                    
15].  He   intended  to  speak   about  the   importance  of                                                                    
destination marketing to Alaska  and the nation, the history                                                                    
of TIDs, and  the specific industry proposal.  He started on                                                                    
slide  16  and stated  that  from  an economic  perspective,                                                                    
travel and  tourism was an incredibly  important industry to                                                                    
the country. One  in nine jobs in the country  came from the                                                                    
travel  and tourism  industry; the  industry generated  $158                                                                    
billion  in  taxes,  which  was  enough  to  pay  for  every                                                                    
firefighter  and police  officer in  the nation.  Travel and                                                                    
tourism  was in  the  top  10 industries  in  49 states  and                                                                    
contributed over  $100 million annually to  Alaska's General                                                                    
Mr. Lambeth  stressed that the industry  needed promotion to                                                                    
sustain a  healthy tourism environment.  He turned  to slide                                                                    
17  and   addressed  the   virtuous  cycle   of  destination                                                                    
promotion. He  explained that investing in  travel marketing                                                                    
and  promotion  created  demand, from  that  demand  visitor                                                                    
spending  was  generated,  which  in turn  created  new  tax                                                                    
revenues  and jobs  to allow  investment  back into  tourism                                                                    
promotion efforts.                                                                                                              
Mr.   Lambeth   highlighted   that   destination   marketing                                                                    
addressed two issues the industry  had. First, when a person                                                                    
decides where  to travel, their  primary choice  was usually                                                                    
the experience  of the destination.  The destination  is the                                                                    
trip  motivator,  not  usually an  attraction,  lodging,  or                                                                    
facility. Consequently, it was  important to get together on                                                                    
a  destination-wide basis  to do  marketing  to promote  the                                                                    
destination.  The  second  issue was  scale.  No  individual                                                                    
business  had  enough  resources  to  market  the  State  of                                                                    
Alaska, businesses  did their own individual  marketing, but                                                                    
marketing  the   destination  required  businesses   to  get                                                                    
together to do marketing overall.                                                                                               
Mr. Lambeth  explained that many destinations  had turned to                                                                    
the  concept of  a tourism  improvement district  [slides 19                                                                    
through  21]. He  detailed it  was an  evolution of  special                                                                    
benefit assessment districts. The TID  built on the theme of                                                                    
special  assessment   districts  and   business  improvement                                                                    
districts in  Alaska. The TID involved  the tourism industry                                                                    
coming together  to assess  itself, collect  the assessment,                                                                    
and spend  the money  to promote  the industry.  He detailed                                                                    
that   hotels  and   other   tourism   businesses  paid   an                                                                    
assessment,   which  could   be  collected   by  the   state                                                                    
government (some  places delegated it to  private entities),                                                                    
and   it   was   managed  by   the   destination   marketing                                                                    
organization (DMO).  The concept  was first created  in 1989                                                                    
in West  Hollywood; it was slow  in growth in the  first few                                                                    
years and in the past decade  there had been an explosion of                                                                    
the districts  - there were  currently 160  districts across                                                                    
11  states.   There  were  at  least   10  states  currently                                                                    
considering the  model for their tourism  promotion efforts.                                                                    
At  present, TIDs  were raising  over $300  million annually                                                                    
for destination marketing activities across the country.                                                                        
3:26:55 PM                                                                                                                    
Mr. Lambeth addressed slide 22  related to national district                                                                    
statistics. The  160 districts  ranged marketing  efforts of                                                                    
$30,000  per year  to $120  million  per year.  He moved  to                                                                    
slide 23 and provided California  as an example. He detailed                                                                    
California was a different state,  with different issues and                                                                    
a  different  tourism  industry,   but  the  model  was  the                                                                    
important  component. He  stressed that  the model  had been                                                                    
incredibly  successful  for  California. He  specified  that                                                                    
industry had  approved the TID  for continuation  four times                                                                    
since 1997. Over  the last three years  California had moved                                                                    
from 28th to  2nd among state tourism  marketing budgets due                                                                    
to  increases in  its TID.  He relayed  that California  had                                                                    
achieved  overwhelming success  by using  the model  without                                                                    
seeking other taxes. He stated  the concept was important in                                                                    
Alaska. The  Alaskan tourism  industry did  not want  to ask                                                                    
the legislature to  tax other industries or  things like car                                                                    
rentals,  lodging,  or  attractions.   The  concept  was  an                                                                    
industry self-assessment.                                                                                                       
Mr. Lambeth moved  to slide 24 and  addressed the industry's                                                                    
proposal for  putting together new legislation.  He detailed                                                                    
that the  Alaska Seafood Marketing Institute  (ASMI) statute                                                                    
was a  good model already  in state  law to start  with. The                                                                    
legislation  could utilize  some of  the best  concepts from                                                                    
other laws  around the country  as it related to  the models                                                                    
and would craft  it to be specific to the  Alaska travel and                                                                    
tourism industry.  He stated that  the industry had  done an                                                                    
incredible job. Civitas had been  working with industry over                                                                    
the past year, and the  industry had come together. He noted                                                                    
it was  no easy feat  for the  industry to come  forward and                                                                    
assess  itself.  He  continued that  the  industry  knew  it                                                                    
wanted and needed a vibrant destination promotion program.                                                                      
Mr.  Lambeth  turned  to  slide 25  and  discussed  that  an                                                                    
important part  of the  program was  a partnership  with the                                                                    
state, which  was common with other  districts. The industry                                                                    
had asked  for the  vehicle rental  tax (about  $9.7 million                                                                    
per year) be  matched with the money from the  TID to create                                                                    
a  partnership  between  the industry  and  the  state.  The                                                                    
industry was  not merely  coming to  the legislature  with a                                                                    
request for  more money as  had been  done in the  past. The                                                                    
industry was committing  to raise more money  and to partner                                                                    
with the state.                                                                                                                 
3:30:04 PM                                                                                                                    
Mr.  Lambeth  relayed  that   the  industry  understood  the                                                                    
legislature  had   difficult  decisions   to  make   and  it                                                                    
appreciated  that   declining  revenue  was   a  significant                                                                    
problem. The industry wanted to be part of the solution.                                                                        
Ms.  Stephens,  presented  a  TID model  on  slide  25.  The                                                                    
proposal would  bring new  money to  the table  and existing                                                                    
funds. The  proposal included a 1  percent assessment, which                                                                    
would  be   the  new  funds   that  would  be   assessed  to                                                                    
accommodations, tours,  and attractions, resulting  in about                                                                    
$7.5  million to  a  marketing program  for  the state.  The                                                                    
proposal  involved   accessing  some  existing   funds.  She                                                                    
referred to  vehicle rental tax  of $9.7 million  - language                                                                    
stated that  the funds  may be  used for  tourism marketing.                                                                    
The package  would result in  a robust marketing  program of                                                                    
$17.2 million,  level with the  marketing budget  four years                                                                    
earlier.  A robust  program was  very  important to  smaller                                                                    
businesses compared to larger ones.                                                                                             
Ms. Stephens  provided the  cruise lines  as an  example and                                                                    
explained  that  the  cruise industry  would  guarantee  its                                                                    
assets were filled; they had  deeper pockets to pull from to                                                                    
make  sure  ship  seats  and  berths  were  filled.  Whereas                                                                    
smaller  businesses  relied  more  on  the  state  marketing                                                                    
program to help leverage  their individual business funds to                                                                    
recruit  guests and  ensure  the guest  was  aware of  their                                                                    
business. She  stressed the critical  nature of  the program                                                                    
that restore funding  to a good level and would  result in a                                                                    
strong tourism  marketing program.  The industry  was asking                                                                    
the  legislature  to help  write  the  enabling language  to                                                                    
provide a  self-assessment for the tourism  industry to fund                                                                    
marketing;   it  was   a  tool   the  industry   needed  the                                                                    
legislature's help to be able to leverage its funds.                                                                            
Co-Chair Seaton  noted the tool  was modeled after  ASMI. He                                                                    
asked   what   percentage   ASMI   assessed   on   industry.                                                                    
Additionally, he  asked for the  match amount.  Ms. Stephens                                                                    
replied she would follow up.                                                                                                    
Mr.  Lambeth added  that  the statute  included  a range  of                                                                    
assessments. He did not know the current number.                                                                                
Co-Chair Foster  asked what kind of  buy-in the organization                                                                    
had received  from industry.  He asked  if they  had started                                                                    
gathering letters from small to large operators.                                                                                
3:33:42 PM                                                                                                                    
Ms.  Leonard  answered  that  they  had  begun  outreach  to                                                                    
industry the previous March. They  were just starting to ask                                                                    
organizations  and businesses  for letters  of support.  The                                                                    
feedback she  had received had been  generally positive. She                                                                    
detailed  that no  one  wanted  to add  more  fees onto  the                                                                    
business,  but  industry   valued  a  statewide  destination                                                                    
marketing   program  and   wanted   to   partner  with   the                                                                    
legislature.  She  had the  support  of  the ATIA  board  of                                                                    
directors  to  move  forward with  the  concept  because  of                                                                    
industry feedback.                                                                                                              
Mr. Lambeth  added that the  legislation would  be enabling,                                                                    
which would specify  what the industry had to  go through if                                                                    
it wanted to  establish a TID. The concept  would still have                                                                    
to go through a vote by the industry before implementation.                                                                     
Representative Guttenberg  referred to slide 2  and noted he                                                                    
had  seen the  concept of  an industry  working on  becoming                                                                    
self-sufficient  many  times.  He  remarked  that  it  never                                                                    
seemed to work. He reasoned  that the industry could vote to                                                                    
self-assess,  but  businesses  may   not  pay  the  fee.  He                                                                    
observed  that people  would not  participate  at a  certain                                                                    
level.  He  moved to  slide  25  that included  the  vehicle                                                                    
rental tax, and  observed that the tax  was already targeted                                                                    
to  other  programs.  He  was  concerned  the  proposal  may                                                                    
shortchange someone if the funds  were diverted. He believed                                                                    
the  proposed idea  was to  turn  the marketing  over to  an                                                                    
outside  marketing  group. He  thought  once  the money  was                                                                    
collected it  would become  designated general  funds (DGF).                                                                    
He asked if  the money would be taken in  and designated for                                                                    
a specific program, but subject to appropriation.                                                                               
3:37:12 PM                                                                                                                    
Mr. Lambeth answered that the  collection processes had been                                                                    
successful; it  was not a voluntary  assessment. He detailed                                                                    
it was voluntary from the  standpoint of the industry taking                                                                    
advantage  of  the  statute.  He   elaborated  that  if  the                                                                    
legislature chose  to put the statute  in place establishing                                                                    
the  rules  under  which  the  TID  could  be  created,  the                                                                    
industry  could  choose  on  a group  basis  whether  to  go                                                                    
forward -  a majority vote  would be required. Once  the TID                                                                    
was  in place,  it would  be compulsory.  Generally, because                                                                    
the  assessments   were  passed  on  to   the  customer  the                                                                    
collection rates had been high.  Additionally, if a business                                                                    
collected  the fee  from  customers but  failed  to pay  it,                                                                    
there could be criminal  sanctions associated. The other 160                                                                    
districts around  the country  had not  experienced problems                                                                    
with collections.                                                                                                               
Ms.  Leonard  replied  that  was  on  the  industry  if  the                                                                    
legislature provided the tool and  the industry chose not to                                                                    
vote. If the  industry neglected to vote, it  would not have                                                                    
a marketing program  it valued. She believed  the last thing                                                                    
the industry  wanted to  do was  come forward  with proposed                                                                    
legislation and not be successful  around unifying itself to                                                                    
support statewide tourism marketing.                                                                                            
Representative Guttenberg  commented on  a bed tax  in other                                                                    
locations. He  did not have  a problem with the  tax because                                                                    
it went  to the marketing  and he  did not understand  why a                                                                    
tax had not been implemented in Alaska.                                                                                         
Representative  Wilson  assumed  there   would  have  to  be                                                                    
definitions  for  tour  activities and  attractions  because                                                                    
there were none  currently. She wondered if it  would be the                                                                    
entire state  versus an Anchorage zone,  Fairbanks zone, and                                                                    
others.  She   noted  that   unlike  California   where  all                                                                    
residents  paid taxes,  some areas  in Alaska  did not.  She                                                                    
wondered if  there had been  an analysis on the  subject and                                                                    
how it would impact the effectiveness of a program.                                                                             
Ms. Leonard answered that it  would be statewide. She agreed                                                                    
and stated  that the  organization wanted  to work  with the                                                                    
legislature  and industry  to flush  out the  details around                                                                    
identifying  or defining  tour  activities and  attractions.                                                                    
They  thought  to  look  at  business  license  codes  as  a                                                                    
resource -  businesses could self-identify and  be detailed.                                                                    
The terms would have to be defined.                                                                                             
Mr. Lambeth added it was  common to have different tax rates                                                                    
for different  kinds of  businesses in  different locations,                                                                    
especially related to bed tax.  He elaborated that different                                                                    
jurisdictions in California had  different bed taxes - those                                                                    
were  on  a  local  basis for  local  destination  marketing                                                                    
efforts.  The state  effort is  a blanket  percentage across                                                                    
the entire state, which worked well.                                                                                            
3:41:04 PM                                                                                                                    
Co-Chair Seaton  asked about the  current funding  the state                                                                    
provided  to  tourism  marketing. Ms.  Leonard  replied  the                                                                    
marketing program  was currently  $1.5 million along  with a                                                                    
capital  grant  of slightly  over  $600,000  to implement  a                                                                    
research program.                                                                                                               
Co-Chair  Seaton   asked  for  clarification.   Ms.  Leonard                                                                    
answered that the funding received  was in the form of state                                                                    
grants to ATIA to implement the marketing elements.                                                                             
Co-Chair  Seaton asked  about  the  total tourism  marketing                                                                    
budget.  Ms.  Leonard  responded   that  the  total  tourism                                                                    
marketing budget with the $1.5  million was slightly over $2                                                                    
million including industry's contribution.                                                                                      
Co-Chair   Seaton  surmised   the   request   was  for   the                                                                    
legislature  to divert  $9.7  million  and increase  tourism                                                                    
marketing by three times with  state matching funds to match                                                                    
a contribution by the industry.                                                                                                 
Ms.  Leonard  stated  the  industry   realized  it  was  the                                                                    
beginning  of  a  conversation.   Industry  wanted  to  move                                                                    
forward  with a  partnership  with  the administration.  The                                                                    
organization would  like to  use existing  revenue generated                                                                    
by  visitors  along  with  new  revenue  assessed  from  the                                                                    
Co-Chair Seaton  remarked that tripling the  budget would be                                                                    
difficult during the current budget environment.                                                                                
Representative Pruitt stated he  had written the language on                                                                    
slide  2   of  the  presentation;   he  was  aware   of  the                                                                    
conversation. Part  of the problem was  that the legislature                                                                    
had told  industry the  vehicle rental tax  would all  go to                                                                    
tourism. He stressed  that none of the tax  went to tourism.                                                                    
He stated that  part of the problem with  industry coming to                                                                    
the table with a proposal  had been that the legislature had                                                                    
broken  their trust.  He commended  ATIA for  coming forward                                                                    
with a proposal  that included a tax on  industry. He stated                                                                    
that it  was different than  a tax  on fish, which  was easy                                                                    
compared to a tax across  the entire state. He commended the                                                                    
industry for  coming to  the legislature, but  it was  up to                                                                    
the  legislature to  follow through.  He remarked  that ATIA                                                                    
understood   there  was   no  state   money  involved,   the                                                                    
organization   merely  needed   the   mechanism  that   ASMI                                                                    
currently had  to formulate something that  would enable the                                                                    
industry  to conduct  the marketing.  He  wanted to  clarify                                                                    
that the  model did  not specify it  needed state  money; it                                                                    
was  a  model  asking  the  legislature  for  assistance  in                                                                    
formulating something, so it could  use the industry to help                                                                    
pay for what it needed.                                                                                                         
3:44:31 PM                                                                                                                    
Mr.  Lambeth  answered  the  industry   was  looking  for  a                                                                    
partnership.  The  partnership  would include  the  industry                                                                    
creating a  self-assessment and  having their  customers pay                                                                    
more, in  addition to returning  some of the  vehicle rental                                                                    
tax that  had been used  to try  to fill the  current budget                                                                    
Representative  Pruitt   recognized  it  would   not  happen                                                                    
immediately.  He  believed  it  was on  the  legislature  to                                                                    
recognize  it  had made  a  promise  initially and  that  it                                                                    
needed  to think  about  how it  fulfilled  its promise.  He                                                                    
remarked that  the industry would  not receive  $9.7 million                                                                    
the  next  day;  however,  it  was  on  the  legislature  to                                                                    
consider it  had told  the industry  the vehicle  rental tax                                                                    
had  been intended  to  go to  tourism.  He believed  former                                                                    
Representative  Pete Kott  had referred  to the  tax as  the                                                                    
Andrew Halcro tax [also a  former Alaska representative]. He                                                                    
elaborated that  the past  year the entire  tax had  gone to                                                                    
something else.  He believed  it was  on the  legislature to                                                                    
correct its errors.                                                                                                             
Mr. Lambeth answered in the affirmative.                                                                                        
Co-Chair  Foster stated  the intent  language from  the past                                                                    
year was  that AITA  would phase out  reliance on  UGF money                                                                    
and look  for ways  to be  self-sustaining. He  surmised the                                                                    
organization's  proposal  was  to   come  up  with  a  self-                                                                    
sustaining system  using TIDs, so  a 1 percent tax  could be                                                                    
imposed  on   hotels  and   tour  activity   and  attraction                                                                    
operators. Additionally,  the organization was  requesting a                                                                    
match or  partnership with  the state  - the  industry's tax                                                                    
would  raise about  $7.5  million and  ATIA  was asking  for                                                                    
slightly  over that  amount as  a match  from the  state. He                                                                    
understood it  would increase  the tourism  marketing budget                                                                    
back to  its 2013 level of  about $16 million. He  noted the                                                                    
proposal would raise approximately  $17 million. He surmised                                                                    
the proposal included two components.                                                                                           
Ms. Leonard replied in the affirmative.                                                                                         
3:47:26 PM                                                                                                                    
The meeting was adjourned at 3:47 p.m.                                                                                          

Document Name Date/Time Subjects
Alaska TID concept House Finance Committee.pdf HFIN 1/24/2017 1:30:00 PM
ATIA Presentation HFIN
Department of Health & Social Services for House Finance 1-24-17.pdf HFIN 1/24/2017 1:30:00 PM
DHSS Budget Overview HFIN
SLA2017 HFin Budget Overview.pdf HFIN 1/24/2017 1:30:00 PM
DNR Budget Overview HFIN
DHSS Response Log 4703-- Multi-Division - House Finance Meeting 1-24-17.pdf HFIN 1/24/2017 1:30:00 PM
DHSS Overview Response
DHSS Response FY2016 Medicaid Optional Service Spend Data.pdf HFIN 1/24/2017 1:30:00 PM
DHSS Overview Response
DHSS Response AK Child Family Program Outcomes.pdf HFIN 1/24/2017 1:30:00 PM
DHSS Overview Response