Legislature(2021 - 2022)ADAMS 519

01/27/2022 01:30 PM House FINANCE

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01:38:09 PM Start
01:38:29 PM HB281 || HB282
02:28:05 PM Presentation: Legislative Finance Division Baseline and Governor's 10-year Plan
03:25:01 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
+ Presentation: Legislative Finance Division TELECONFERENCED
Baseline and Governor's 10-year Plan by
Alexei Painter, Director, Legislative Finance
                  HOUSE FINANCE COMMITTEE                                                                                       
                     January 27, 2022                                                                                           
                         1:38 p.m.                                                                                              
1:38:09 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 1:38 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Kelly Merrick, Co-Chair                                                                                          
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Bryce Edgmon                                                                                                     
Representative DeLena Johnson                                                                                                   
Representative Andy Josephson                                                                                                   
Representative Bart LeBon                                                                                                       
Representative Sara Rasmussen (via teleconference)                                                                              
Representative Steve Thompson                                                                                                   
Representative Adam Wool                                                                                                        
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Brodie Anderson, Staff, Representative Neal Foster; Connor                                                                      
Bell, Fiscal Analyst, Legislative Finance Division.                                                                             
PRESENT VIA TELECONFERENCE                                                                                                    
Alexei Painter, Director, Legislative Finance Division                                                                          
HB 281    APPROP: OPERATING BUDGET/LOANS/FUNDS                                                                                  
          HB 281 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 282    APPROP: MENTAL HEALTH BUDGET                                                                                          
          HB 282 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
PRESENTATION:  LEGISLATIVE  FINANCE  DIVISION  BASELINE  and                                                                    
GOVERNOR'S 10-YEAR PLAN                                                                                                         
1:38:29 PM                                                                                                                    
Co-Chair Foster reviewed the meeting agenda.                                                                                    
HOUSE BILL NO. 281                                                                                                            
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain   programs;    capitalizing   funds;   amending                                                                    
     appropriations;    making   reappropriations;    making                                                                    
     supplemental   appropriations;  making   appropriations                                                                    
     under art.  IX, sec.  17(c), Constitution of  the State                                                                    
     of  Alaska,  from  the  constitutional  budget  reserve                                                                    
     fund; and providing for an effective date."                                                                                
HOUSE BILL NO. 282                                                                                                            
     "An  Act making  appropriations for  the operating  and                                                                    
     capital    expenses   of    the   state's    integrated                                                                    
     comprehensive  mental  health program;  making  capital                                                                    
     appropriations  and  supplemental  appropriations;  and                                                                    
     providing for an effective date."                                                                                          
1:39:28 PM                                                                                                                    
Co-Chair  Foster  explained  that the  committee  substitute                                                                    
(CS)  represented  the   governor's  proposed  budget  which                                                                    
removed the federal American Rescue  Plan Act (ARPA) funding                                                                    
and replaced  it with undesignated  general funds  (UGF). He                                                                    
detailed the reasoning  for the change. It  was important to                                                                    
strive to  match recurring  expenses with  recurring revenue                                                                    
rather than  with one-time revenue.  He believed  the action                                                                    
took  a more  conservative view  of the  budget to  show the                                                                    
deficit,  which would  put pressure  on  the legislature  to                                                                    
refrain  from  proposing   additional  expenses  within  the                                                                    
Co-Chair  Merrick  MOVED  to ADOPT  the  proposed  committee                                                                    
substitute  for  HB  281,   Work  Draft  32-GH2686\W  (Marx,                                                                    
Co-Chair Foster OBJECTED for discussion.                                                                                        
BRODIE   ANDERSON,   STAFF,  REPRESENTATIVE   NEAL   FOSTER,                                                                    
explained  the  CS, which  he  characterized  as more  of  a                                                                    
process  than  a  finished   product.  Alaska  had  received                                                                    
billions of dollars in federal  aid through programs such as                                                                    
the Coronavirus  Aid, Relief, and Economic  Security (CARES)                                                                    
Act,  the  Coronavirus   Response  and  Relief  Supplemental                                                                    
Appropriations  Act  (CRRSAA),  ARPA, and  eventually  would                                                                    
receive  funds  through  the Infrastructure  Investment  and                                                                    
Jobs  Act (IIJA).  When  the governor  delivered  his FY  23                                                                    
budget, it  was a finished  product that reflected  both his                                                                    
priorities  and  the  designation  of  funds.  Mr.  Anderson                                                                    
thought  that  the  legislature   should  take  a  similarly                                                                    
calculated  approach.  He  suggested  that  the  legislature                                                                    
examine   and   prioritize   spending,  then   discuss   the                                                                    
utilization  of the  available federal  funds.  In order  to                                                                    
take the approach, the budget needed  to be rolled back to a                                                                    
baseline starting point. The CS  proposed the replacement of                                                                    
federal funds  with UGF for  spending. The  changes included                                                                    
the  following: an  increase of  $522.2 million  spending of                                                                    
regular  UGF, a  decrease of  $82 million  of federal  funds                                                                    
that would  later become  known as IIJA,  a decrease  of $21                                                                    
million of  CARES funding, a  decrease of $560.7  million of                                                                    
CRRSAA  funding,   and  a  decrease  of   $44.4  million  of                                                                    
Coronavirus State and Local Fiscal Recovery Funds (CSLFRF).                                                                     
1:44:20 PM                                                                                                                    
Co-Chair Foster  asked if  Mr. Anderson  was referring  to a                                                                    
particular handout.                                                                                                             
Mr. Anderson answered  that he was referring  to his opening                                                                    
statements  but  would  be  happy  to  move  on  to  discuss                                                                    
document 1, "Changes  from Gov to House  Baselines CS" (copy                                                                    
on file).                                                                                                                       
Co-Chair Foster  asked if there  were more changes  that Mr.                                                                    
Anderson  wanted to  convey in  his  opening statements.  He                                                                    
assumed that the changes were outlined in document 1.                                                                           
Mr.  Anderson responded  that the  remainder of  his opening                                                                    
statements were reflected in document 1.                                                                                        
Co-Chair  Foster  suggested  that Mr.  Anderson  finish  his                                                                    
opening statements.                                                                                                             
Mr. Anderson  continued that  there was  a decrease  of $375                                                                    
million  of  ARPA funding,  which  was  spent in  a  similar                                                                    
manner  as UGF.  He  noted the  decrease  explained why  UGF                                                                    
funding in document  1 appeared to be  so substantial. Also,                                                                    
a $7  million appropriation  was removed for  Alaska Seafood                                                                    
Marketing Institute  (ASMI) in  cooperation with  the Office                                                                    
of Management and  Budget (OMB). Finally, $5  million of UGF                                                                    
was added  for the  purpose of rate  smoothing to  match the                                                                    
previous  year's budget  structure.  The net  result of  the                                                                    
changes  was an  increase in  UGF  of $146.8  million and  a                                                                    
decrease of $148.8 million in  combined federal funds, which                                                                    
reflected a $2 million cut from all funds.                                                                                      
Mr. Anderson suggested that he  review document 1, which had                                                                    
been prepared by the Legislative  Finance Division (LFD) and                                                                    
Co-Chair Foster's office.                                                                                                       
Co-Chair Foster  asked for  a summary of  the net  result of                                                                    
the  changes.  He asked  for  verification  that the  budget                                                                    
would reflect a  deficit of $300 million if  ARPA funds were                                                                    
not utilized.                                                                                                                   
Mr.  Anderson replied  that LFD  would be  better suited  to                                                                    
answer  the question.  He noted  that  LFD's fiscal  summary                                                                    
indicated  there  would  be  a deficit  of  just  over  $350                                                                    
1:47:15 PM                                                                                                                    
Co-Chair Foster  stated that the overall  picture would show                                                                    
two numbers:  $375 million as  revenue replacement  for ARPA                                                                    
and a little over $500  million to cover the other functions                                                                    
of  ARPA funds.  He  relayed that  the  subtleties would  be                                                                    
explained  later in  the meeting.  He  reiterated that  ARPA                                                                    
funds  had to  be used,  and  he did  not want  to give  the                                                                    
impression  that ARPA  funds were  being replaced  with UGF.                                                                    
The  intent  was  to  emphasize that  ARPA  was  a  one-time                                                                    
funding source  and should not  be factored into  the budget                                                                    
as  a reliable  funding source.  The funds  should encourage                                                                    
the legislature to be fiscally conservative.                                                                                    
Mr. Anderson returned  to document 1. He  explained that the                                                                    
first  column referred  to the  item numbers,  the following                                                                    
six  columns referred  to the  fund source  codes, the  next                                                                    
column  referred to  the net  impact, and  the final  column                                                                    
showed the location  of the item within the  bill. The first                                                                    
item was  revenue replacement which involved  an increase of                                                                    
$375.4  million in  UGF.  The second  item  was ASMI,  which                                                                    
experienced  a  $7  million  decrease  due  to  overextended                                                                    
spending. The  next item was the  Department of Correction's                                                                    
(DOC)  DNA  collection,  which had  previously  been  funded                                                                    
through  CSLFRF  and  had  been shifted  back  to  UGF.  The                                                                    
following  item,  the  Department  of  Labor  and  Workforce                                                                    
Development's  (DLWD)  workforce  training, was  also  moved                                                                    
from  CSLFRF  to  UGF. Following  that,  the  Department  of                                                                    
Public Safety's (DPS) Victims of  Crimes Act (VOCA) had also                                                                    
been  moved from  CSLFRF  to UGF.  He  rolled the  following                                                                    
three University  of Alaska items together:  $10 million for                                                                    
drones,  $5 million  for  heavy oil,  and  $7.8 million  for                                                                    
minerals switched from CSLFRF to UGF.                                                                                           
Mr.  Anderson  continued to  address  the  next item,  which                                                                    
reflected  an  addition  of  $5  million  in  UGF  for  rate                                                                    
smoothing  to  allow  for  rate  changes  and  charges.  The                                                                    
following two items were the  Alaska Marine Highway System's                                                                    
(AMHS) funds for  calendar year (CY) 22 and  the actual AMHS                                                                    
increase. Both  were currently funded through  federal funds                                                                    
but would potentially qualify for  IIJA funds designated for                                                                    
ferry systems. Both  of the AMHS items had  been switched to                                                                    
UGF. Finally,  the Department  of Transportation  and Public                                                                    
Facilities (DOT)  and other COVID-19 fund  source items were                                                                    
moved to UGF, totaling $21.8  million in actual COVID relief                                                                    
and  $560,000  in  federal highway  and  CRRSAA  funds.  The                                                                    
handout  concluded  that there  was  an  increase of  $522.2                                                                    
million  in  UGF  that  had  been added  to  the  budget  to                                                                    
establish the true baseline. At  a later date, the committee                                                                    
would  have  a  conversation  about  the  redistribution  of                                                                    
CRRSAA  and ARPA  funds that  had  become available  through                                                                    
switching items to UGF.                                                                                                         
1:53:41 PM                                                                                                                    
Mr. Anderson reviewed  the net result of the  changes in the                                                                    
summary at  the bottom  of document 1.  He noted  that there                                                                    
was  an  increase  of  $146.8  million  of  UGF,  a  federal                                                                    
decrease of  $148.8 million, and  an actual reduction  of $2                                                                    
million in all funds in the governor's budget.                                                                                  
Co-Chair  Foster emphasized  that the  governor had  already                                                                    
made  his decision  as to  how he  would like  to spend  the                                                                    
federal  ARPA  and CSLFRF  dollars.  He  suggested that  the                                                                    
committee would  also determine how  it would like  to spend                                                                    
the funds.                                                                                                                      
Vice-Chair  Ortiz  asked  for   more  details  on  the  rate                                                                    
smoothing process.                                                                                                              
Mr.  Anderson  answered  that  OMB  and  the  Department  of                                                                    
Administration  (DOA)  worked   with  other  departments  to                                                                    
standardize rates  and charges.  Through the  process, there                                                                    
could be fluctuations that were  not been accounted for, and                                                                    
rate  smoothing  held  both harmless  and  the  process  was                                                                    
worked  through. Rate  smoothing had  been approved  in 2021                                                                    
and the process was continuing on in 2022.                                                                                      
Vice-Chair   Ortiz  stated   his  understanding   that  rate                                                                    
smoothing allowed  for an  amount of money  to be  set aside                                                                    
and made available to address any potential shortfalls.                                                                         
Mr. Anderson responded in the affirmative.                                                                                      
1:56:01 PM                                                                                                                    
Representative  Edgmon supported  the  process of  switching                                                                    
out the federal  funds and building the budget  back up from                                                                    
the baseline.  He understood  that some  of the  funds would                                                                    
not  been available  to the  state until  federal guidelines                                                                    
were received.                                                                                                                  
Mr.  Anderson  answered that  Mr.  Alexei  Painter from  LFD                                                                    
would likely  have a better  explanation. He  clarified that                                                                    
the  second   column  on  document   1  detailed   the  IIJA                                                                    
investment.  He was  not sure  what  the federal  guidelines                                                                    
would be.                                                                                                                       
Representative  Edgmon suggested  that the  state might  not                                                                    
receive the federal funds and  would need to account for the                                                                    
funds in another way.                                                                                                           
Representative  Carpenter  commented   that  it  was  always                                                                    
exciting to  see how the  legislature rolled out  the budget                                                                    
because it was  never the same. He asked if  there was a way                                                                    
to explain the fund codes at  the top of the handout to make                                                                    
the conversation more accessible to the public.                                                                                 
Mr.  Anderson answered  that most  of the  time, the  budget                                                                    
spending was  referred to as  general funds,  federal funds,                                                                    
other, and designated general funds  (DGF). At a more minute                                                                    
level,  the four  fund categories  each  fell into  specific                                                                    
fund sources.  For example, federal  funds were  provided by                                                                    
federal departments  and would  be designated a  fund source                                                                    
code.  He  suggested  that representatives  from  LFD  could                                                                    
offer a more detailed explanation.                                                                                              
Co-Chair  Foster asked  if Mr.  Anderson knew  the breakdown                                                                    
within the columns on the handout.                                                                                              
2:00:08 PM                                                                                                                    
Mr. Anderson clarified  that the first column  with the fund                                                                    
source code  1004 relating  to UGF  was the  main designated                                                                    
fund. He added  that 1002 was the general  federal fund code                                                                    
at the moment  because an IIJA fund source code  had not yet                                                                    
been established.  He explained  that the 1265  federal code                                                                    
related  to  CARES  funding  and  1270  represented  federal                                                                    
funding  through CRRSAA.  He continued  that  1269 and  1271                                                                    
were applicable  to ARPA  and CSLFRF,  and 1271  was revenue                                                                    
replacement specifically attached  to authorization given by                                                                    
ARPA to replace lost revenue due to the pandemic.                                                                               
Co-Chair  Foster   clarified  that  IIJA  was   the  federal                                                                    
infrastructure funds that were  forthcoming to the state. He                                                                    
understood that  CRRSAA funds were mainly  applicable to the                                                                    
transportation sector.                                                                                                          
Mr. Anderson nodded in agreement.                                                                                               
Co-Chair Foster added that  CSLFRF referred to discretionary                                                                    
Representative  Carpenter asked  why more  details were  not                                                                    
yet  known about  IIJA. He  wondered if  it was  because the                                                                    
federal  agency had  not yet  given the  information to  the                                                                    
state  or if  the federal  agency  itself did  not know  the                                                                    
Mr. Anderson answered that he  was working with OMB to craft                                                                    
a  presentation that  would  specifically  explain IIJA  and                                                                    
other COVID relief funds. He  relayed that the IIJA bill had                                                                    
been passed and signed, but  the federal agencies were still                                                                    
working through guidelines and regulations.                                                                                     
2:03:08 PM                                                                                                                    
Representative Josephson  shared that he had  been a student                                                                    
of the  governor's vetoes and  had authored an op-ed  on the                                                                    
subject. He  thought it was  a great exercise  in showcasing                                                                    
the   difference  between   recurring  need   and  recurring                                                                    
revenue. He was concerned about  the three UA items: drones,                                                                    
heavy oil,  and minerals. He  expected that the  items would                                                                    
be vetoed  by the governor  if they remained funded  by UGF,                                                                    
based on past practices.                                                                                                        
Co-Chair  Foster  thought  that  it was  possible  that  the                                                                    
committee  would  fund the  three  items  the same  way  the                                                                    
governor funded the items. He  thought it required a mindset                                                                    
shift  to refrain  from adding  any significant  expenses to                                                                    
the budget if it appeared there was a small surplus.                                                                            
Representative Thompson thanked  Mr. Anderson for explaining                                                                    
some of the  fund codes so that members of  the public could                                                                    
understand.  He thought  it  would be  helpful  to list  the                                                                    
definitions  of  the  codes   in  the  documents  themselves                                                                    
because it  could be confusing  considering the  vast number                                                                    
of COVID related federal funds.                                                                                                 
Mr.  Anderson  replied  that  he  would  work  with  LFD  to                                                                    
accommodate the request.                                                                                                        
Representative  Wool  referred  to the  revenue  replacement                                                                    
line  item  in  the  far  left  column  on  document  1  and                                                                    
understood  that  it referred  to  leftover  ARPA money.  He                                                                    
thought that  the $375 million  UGF revenue  replacement was                                                                    
specifically intended  for the operating budget,  and it was                                                                    
a misnomer  to use UGF  for revenue replacement.  He thought                                                                    
the UGF total  of $146 million in the summary  at the bottom                                                                    
of the document made sense if  the $375 million fund was not                                                                    
Mr. Anderson  agreed that the  revenue replacement  was part                                                                    
of  ARPA  and   noted  that  in  2021,  there   had  been  a                                                                    
conversation about  splitting the  amount into  $500 million                                                                    
for FY  22 and $500  million for  FY 23. After  the spending                                                                    
that occurred in FY 22, $504  million was left on the table.                                                                    
The governor's  budget had exhausted  the usage of  the $504                                                                    
million,   which   included    $375   million   in   revenue                                                                    
replacement. By  excluding the $375 million,  there could be                                                                    
a full  conversation on  how much  of the  monies to  use in                                                                    
revenue replacement.                                                                                                            
2:08:38 PM                                                                                                                    
Representative Wool  asked for clarification on  whether the                                                                    
funds would expire if not used by a certain date.                                                                               
Mr. Anderson  believed the funds would  be available through                                                                    
FY 24.                                                                                                                          
Representative   Wool  understood   there  was   $5  million                                                                    
allocation for rate smoothing and  a $7 million cut to ASMI.                                                                    
He asked  for verification that  ASMI would not  receive the                                                                    
Mr. Anderson  confirmed that the  ASMI funding  was intended                                                                    
to be a one-time item that was a residual holdover.                                                                             
Representative Johnson asked if it  was fair to say that the                                                                    
governor's  hybrid budget  followed  the legislature's  lead                                                                    
from the previous year.                                                                                                         
Mr.  Anderson agreed  that the  governor  followed the  same                                                                    
revenue  replacement  strategy   that  the  legislature  had                                                                    
Representative Johnson  was concerned  that the  numbers for                                                                    
the  FY 22  management  plan were  not  accurate unless  the                                                                    
COVID money was removed.                                                                                                        
Mr. Anderson deferred to LFD.                                                                                                   
Co-Chair  Foster  referred  to  document 2  (copy  on  file)                                                                    
showing   the   FY  22   management   plan.   He  asked   if                                                                    
Representative  Johnson was  referring  to column  1 of  the                                                                    
handout which showed a deficit of $392 million.                                                                                 
Representative  Johnson responded  in  the affirmative.  She                                                                    
understood that  any figures  in column  1 would  need COVID                                                                    
related funds to be removed to be accurate.                                                                                     
Co-Chair Foster believed the federal  ARPA funds had already                                                                    
been backed out of the numbers.                                                                                                 
Mr. Anderson clarified  that document 2 was  a comparison of                                                                    
all funds and document 3 (copy  on file) was a comparison of                                                                    
UGF only.  The only real change  of all funds in  document 2                                                                    
was a $2  million decrement at the bottom of  the first page                                                                    
and  in the  middle of  the second  page. He  explained that                                                                    
document 3 showed the UGF  comparison and showed an increase                                                                    
of $146.8 million.  The reason for the  increase was because                                                                    
the revenue  replacement fund source  code had  been labeled                                                                    
as UGF. He suggested that  Mr. Alexei Painter from LFD offer                                                                    
more detail.                                                                                                                    
2:13:17 PM                                                                                                                    
Co-Chair Foster corrected himself  and thought he might have                                                                    
been confusing FY 22 and FY 23. He deferred to Mr. Painter.                                                                     
ALEXEI PAINTER, DIRECTOR,  LEGISLATIVE FINANCE DIVISION (via                                                                    
teleconference), answered that because  the changes were UGF                                                                    
to UGF,  the year  to year  budgets were  comparable because                                                                    
all of  the revenue  replacement was  still UGF.  The totals                                                                    
would  not change;  the  only change  would  be the  deficit                                                                    
Representative Johnson  asked for  verification that  the FY                                                                    
22 and  FY 23 management  plans would compare  directly. She                                                                    
asked  if the  plan would  need  to have  the federal  money                                                                    
backed out to be comparable.                                                                                                    
Mr.  Painter answered  that  the  revenue replacement  items                                                                    
would all show  as UGF to avoid year to  year distortions in                                                                    
the budget  and would  be comparable from  year to  year. He                                                                    
relayed that  it was  a deliberate  strategy crafted  by LFD                                                                    
and OMB.  There was also a  tracking code for OMB  to report                                                                    
the revenue  replacement use to  the federal  government and                                                                    
many multiyear  items in  the previous  year's supplemental.                                                                    
The only  ongoing item between FY  22 and FY 23  using COVID                                                                    
related funds  was DOC's DNA  collections piece.  Other than                                                                    
that, the items were one-time uses year to year.                                                                                
Representative  Johnson  thought   she  would  need  further                                                                    
clarification offline.                                                                                                          
Representative  Josephson stated  that part  of the  revenue                                                                    
replacement from the  previous year had to  be defensible as                                                                    
replacement  for  lost  local   revenue.  He  asked  if  the                                                                    
circumstance was the same in the current year.                                                                                  
Mr. Anderson deferred to Mr. Painter.                                                                                           
Mr.   Painter   replied   that   the   revenue   replacement                                                                    
calculation executed by the Department  of Revenue (DOR) had                                                                    
been  performed  in  accordance with  federal  guidance.  He                                                                    
elaborated  that substantial  lost revenue  was demonstrated                                                                    
in  FY 20  and FY  21. The  monies could  be implemented  as                                                                    
revenue replacement  during the qualifying period  which was                                                                    
through the end of CY 24.                                                                                                       
Representative  Josephson  asked  for verification  that  it                                                                    
would  not be  necessary to  prove up  the lost  revenue for                                                                    
each  category. For  example, oil  prices were  currently up                                                                    
but the  prices had been  down as  a result of  the original                                                                    
shock of the pandemic.                                                                                                          
Mr. Painter  responded in the  affirmative. The  state would                                                                    
be  permitted to  use  the entire  available  amount of  the                                                                    
COVID related  relief funds for revenue  replacement because                                                                    
there was  significant lost  revenue in  2020 and  2021. The                                                                    
revenue replacement  funds were not  required to be  used in                                                                    
the same year in which the revenue was lost.                                                                                    
2:18:50 PM                                                                                                                    
Representative  Thompson referenced  the three  UA items  in                                                                    
document 1:  drones, heavy  oil, and  minerals. He  asked if                                                                    
the items would be better suited for the capital budget.                                                                        
Mr.  Painter  replied  that Representative  Thompson  had  a                                                                    
great  point.  He agreed  that  the  three items  were  more                                                                    
traditionally considered  capital items. The fund  source of                                                                    
CSLFRF was  only available through  December of 2024  and it                                                                    
was a  multiyear item  that would  expire around  that time.                                                                    
However,  he agreed  it should  really be  a capital  budget                                                                    
item,  especially if  it became  an item  funded by  UGF. He                                                                    
relayed that LFD would encourage  moving the UA items to the                                                                    
capital budget.                                                                                                                 
Co-Chair  Foster asked  if Mr.  Anderson  had completed  his                                                                    
Mr. Anderson responded that he was finished.                                                                                    
2:20:17 PM                                                                                                                    
AT EASE                                                                                                                         
2:23:03 PM                                                                                                                    
Co-Chair  Foster  asked   if  Representative  Rasmussen  was                                                                    
online.  It was  unclear whether  she still  was online.  He                                                                    
reminded members that  there had been a motion  to adopt the                                                                    
Co-Chair Foster  WITHDREW his OBJECTION  to the  adoption of                                                                    
the CS.                                                                                                                         
Representative  Carpenter   OBJECTED  in  order  to   get  a                                                                    
statement on  the record. He  thought that jumping  from one                                                                    
budget  method  to another  method  from  year to  year  was                                                                    
confusing.  He would  have to  spend a  good amount  of time                                                                    
learning  about the  process and  thought  the change  would                                                                    
require additional explanation to the public.                                                                                   
Co-Chair Foster thought Representative  Carpenter had a good                                                                    
point. The budget process had  always been an ongoing debate                                                                    
and change added another wrinkle to the process.                                                                                
Vice-Chair Ortiz  commented that the fluctuation  was due to                                                                    
the  changes   in  federal  funds.  He   stated  that  until                                                                    
recently, the legislature had not  had to deal with dramatic                                                                    
changes  due to  the  pandemic. He  thought that  procedural                                                                    
changes were a  result of the current  circumstances. He did                                                                    
not  believe  the  fluctuations  would  continue  after  the                                                                    
federal   funds   expired   and    there   would   be   more                                                                    
Co-Chair Foster agreed.  He stated that his goal  was to put                                                                    
downward pressure  on spending,  which he believed  would be                                                                    
accomplished by the CS.                                                                                                         
There being NO  further OBJECTION, CSHB 218,  Work Draft 32-                                                                    
GH2686\W (Marx, 1/27/22) was ADOPTED.                                                                                           
^PRESENTATION:  LEGISLATIVE  FINANCE DIVISION  BASELINE  and                                                                  
GOVERNOR'S 10-YEAR PLAN                                                                                                       
2:28:05 PM                                                                                                                    
ALEXEI PAINTER, DIRECTOR,  LEGISLATIVE FINANCE DIVISION (via                                                                    
teleconference), provided  a PowerPoint  presentation titled                                                                    
"Comparison  of Governor's  10-Year Plan  to LFD  Baseline,"                                                                    
dated January 27,  2022 (copy on file). He began  on slide 2                                                                    
and provided  an outline of  his presentation. He  turned to                                                                    
slide 3 and  offered a review of LFD's  modeling baseline as                                                                    
    Legislative Finance's fiscal model is designed to show                                                                   
     policy makers  the longer-term impact of  fiscal policy                                                                    
    The baseline assumptions are essentially that current                                                                    
     budget levels  are maintained, adjusted  for inflation.                                                                    
     Policy changes are then applied against that baseline.                                                                     
    Our default is to assume that statutory formulas will                                                                    
     be followed.                                                                                                               
Mr. Painter turned to slide 4 and reviewed LFD's revenue                                                                        
assumptions as follows:                                                                                                         
      LFD's  baseline   revenue   assumptions   are   the                                                                    
      Department of Revenue's Fall Revenue Forecast.                                                                            
        - This assumes $71 oil in FY23, following futures                                                                       
        market thereafter.                                                                                                      
      DNR oil production  forecast  projects that  Alaska                                                                    
        North Slope production will increase from 500.2                                                                         
        thousand barrels per day in FY23 to 586.2 thousand                                                                      
        barrels per day in FY31.                                                                                                
      For the Permanent  Fund,  we  use  Callan's  return                                                                    
        assumption of 5.86% total return in FY22 and 6.20%                                                                      
Mr. Painter moved to slide 5 and reviewed LFD spending                                                                          
assumptions as follows:                                                                                                         
    For agency operations,  these  scenarios  assume  the                                                                    
    Governor's FY23 budget grows with inflation (2.0%).                                                                         
    For statewide items, the  baseline  assumes that  all                                                                    
     items  are  funded  to their  statutory  levels  beyond                                                                    
     -  This includes  School Debt  Reimbursement, the  REAA                                                                    
     Fund, Community Assistance, oil and gas tax credits.                                                                       
    For the capital budget, we assume the Governor's FY23                                                                    
     capital budget grows with inflation (2.0%)                                                                                 
    For supplementals we assume $50.0  million per  year.                                                                    
     This  is based  on the  average amount  of supplemental                                                                    
     appropriations minus lapsing funds each year                                                                               
2:31:40 PM                                                                                                                    
Mr. Painter  highlighted the LFD modeling  baseline on slide                                                                    
6.  He  explained the  modeling  showed  a deficit  of  $1.4                                                                    
billion  in  FY  23,  which would  quickly  go  through  the                                                                    
Constitutional  Budget  Reserve  (CBR).  The  deficit  would                                                                    
require additional  draws from the Earnings  Reserve Account                                                                    
(ERA)  in  order  to  reach   budget  levels  based  on  the                                                                    
statutory dividend.                                                                                                             
Mr.  Painter  moved to  slide  7  and addressed  the  policy                                                                    
changes in the governor's 10-year plan as follows:                                                                              
   PFD is 50% of POMV, including an FY22 supplemental;                                                                       
    Agency operations are held flat in FY24, then grow at                                                                    
     1.5% for all items except Medicaid, which grows at                                                                         
    Beginning in FY24, School Debt Reimbursement is funded                                                                   
     at 50%, and the REAA Fund Cap is reduced to a flat                                                                         
     $17.5 million;                                                                                                             
    PERS and TRS health care contributions are not funded;                                                                   
    The capital budget is held flat with no inflationary                                                                     
     growth, but a General Obligation Bond issued in FY23                                                                       
     increases debt service by $22.8 million in FY24 and                                                                        
    Supplementals and lapse are assumed to cancel out; and                                                                   
    Governor uses $375.4 million of ARPA revenue                                                                             
     replacement in FY23.                                                                                                       
2:34:37 PM                                                                                                                    
Representative Josephson  shared that  he was the  author of                                                                    
HB 55  in its  original form, which  was a  defined benefits                                                                    
bill  that   informed  future  tiers  that   special  health                                                                    
insurance would  not be provided  due to its  costliness. He                                                                    
did not  understand the  governor's thought  process because                                                                    
it  seemed   to  indicate  that  retirees   would  not  need                                                                    
additional  health  care funding  for  the  next decade.  He                                                                    
asked if he  was understanding the fourth bullet  on slide 7                                                                    
Mr. Painter answered that when  unfunded liability was first                                                                    
opened  up, there  were  two  funds: a  pension  fund and  a                                                                    
health   care  fund.   The  additional   state  contribution                                                                    
implemented in FY 14 was  distributed to both funds based on                                                                    
the fund ratio at the  time. Since then, AlaskaCare had held                                                                    
its  costs significantly  below  the actuarial  expectations                                                                    
from FY 14. There was an  increase to the AlaskaCare rate in                                                                    
the  current  year for  the  first  time in  recent  history                                                                    
through  a number  of cost  saving  measures. The  actuarial                                                                    
analysis found  that the health  care contribution  fund was                                                                    
funded  at  greater  than  a   100  percent  ratio  even  if                                                                    
additional state  contributions were  not provided.  Part of                                                                    
the reason  for cautionary  action by the  Alaska Retirement                                                                    
Management  Board  (ARMB)  was   that  the  situation  could                                                                    
change, and  the board wanted to  take it a year  at a time.                                                                    
The  system  was fully  funded  and  there  was no  need  to                                                                    
continue funding  the healthcare portion. He  noted that the                                                                    
pension side  was still underfunded,  but the  fourth bullet                                                                    
related specifically to the health care fund.                                                                                   
Representative Josephson  relayed that he had  confidence in                                                                    
Mr. Painter and did not  doubt to his statement. However, he                                                                    
thought   the   choice  to   not   fund   health  care   was                                                                    
counterintuitive   considering  there   had  been   so  many                                                                    
conversations about the rising costs of health care.                                                                            
Representative  Carpenter  stated  that maybe  the  adequate                                                                    
funding of  heath care  was evidence  that the  arguments in                                                                    
the past were not accurate.                                                                                                     
Mr. Painter  advanced to slide  8 and provided  a comparison                                                                    
of the LFD model to the governor's model as follows:                                                                            
    Other than policy choices, there is only one                                                                             
     substantive difference in assumptions:                                                                                     
     -  LFD  adopted  an  assumption from  the  Fiscal  Plan                                                                    
     Working Group that School  Bond Debt Reimbursement will                                                                    
     begin  to add  new  debt after  the current  moratorium                                                                    
     expires. This slightly increases  the baseline for both                                                                    
     School Debt and the REAA Fund.                                                                                             
    Other differences are due to rounding and presentation                                                                   
     differences (for example, OMB includes fund transfers                                                                      
     with statewide items, LFD separates them).                                                                                 
    We also have slightly different CBR starting balances                                                                    
       LFD will not update last year's estimates until                                                                          
     audited numbers are available, OMB has slightly higher                                                                     
     estimates based on pre-audit actuals.                                                                                      
2:40:14 PM                                                                                                                    
Representative Carpenter suggested that  it was important to                                                                    
keep in mind  all the assumptions that came  from the fiscal                                                                    
policy working group. He did  not think it was the intention                                                                    
of the legislature  to cherry pick from  the working group's                                                                    
recommendations, but  to instead  look at  the comprehensive                                                                    
Mr. Painter continued to slide  9, which showed a comparison                                                                    
of  the governor's  10-year plan  to the  LFD baseline.  The                                                                    
main difference  in FY 23  was the  supplemental assumption.                                                                    
There was  about a $200 billion  difference in FY 24  due to                                                                    
the  flat  budget proposed  by  the  governor that  did  not                                                                    
include  inflationary growth.  In the  following years,  the                                                                    
amount compounded and there was  a slower growth rate. By FY                                                                    
31, the policy changes proposed  by the governor resulted in                                                                    
a  budget  that  was  about $400  billion  less  than  LFD's                                                                    
baseline. He  highlighted that in LFD's  baseline, there was                                                                    
a drop in the budget between FY  25 and FY 26 due to oil and                                                                    
gas tax  credits being paid off  in FY 26 and  resulted in a                                                                    
significant decrease in the budget.                                                                                             
Mr. Painter moved  to slide 10 and  discussed the difference                                                                    
in  agency operations  between the  governor's 10-year  plan                                                                    
and   the  LFD   baseline.  He   noted  that   although  the                                                                    
differences  between  the  two  seemed  small,  the  amounts                                                                    
compounded quickly  over time. For example,  the $80 million                                                                    
difference in FY  24 became a $270 million  difference by FY                                                                    
31. It was surprisingly powerful over time.                                                                                     
Mr. Painter moved  to slide 11 which  compared the statewide                                                                    
items to the  governor's 10-year plan and  the LFD baseline.                                                                    
He pointed  out that there  was a slight difference  in debt                                                                    
service  reflected   by  the  school   debt  amount   and  a                                                                    
significant difference  in retirement due to  the assumption                                                                    
that health  care would  not be  funded. He  summarized that                                                                    
the difference  between the governor's 10-year  plan and the                                                                    
LFD baseline  in terms of  statewide items was in  the realm                                                                    
of $40 million to $70 million per year.                                                                                         
Mr.  Painter advanced  to  slide 12  and  discussed the  LFD                                                                    
modeling baseline  chart, which modeled the  switch from the                                                                    
statutory dividend to the 50  percent of market value (POMV)                                                                    
draw. The  proposed switch  would result  in a  $400 million                                                                    
deficit in FY 23 if there  were no other policy changes. The                                                                    
deficit would grow to about $484  million in FY 24 and would                                                                    
shrink  down  to  $312  million   in  FY  31  and  would  be                                                                    
persistent if  the governor's other policy  changes were not                                                                    
also implemented.  The dividend change alone  was not enough                                                                    
to close the deficit in the model.                                                                                              
2:45:44 PM                                                                                                                    
Mr.  Painter addressed  the governor's  10-year plan  in the                                                                    
LFD  model on  slide 13.  He relayed  that the  numbers were                                                                    
close  to what  was  shown by  the  governor's plan  itself.                                                                    
There were  significant deficits from  FY 23 through  FY 25,                                                                    
but the  deficit began to shrink  in FY 26. He  relayed that                                                                    
LFD  agreed with  the governor's  analysis that  the deficit                                                                    
would be closed  if all of the proposed  policy changes were                                                                    
Representative   Josephson  asked   if  Mr.   Painter  could                                                                    
reiterate what all of the policy changes were.                                                                                  
Mr.  Painter  responded  that the  changes  were  the  items                                                                    
listed on  slide 7.  The most  material components  were the                                                                    
proposed year  of no budget  growth and the  partial funding                                                                    
of numerous statewide items.                                                                                                    
Representative Josephson stated that  in a recent House Ways                                                                    
and Means  Committee meeting, the Alaska  State Hospital and                                                                    
Nursing  Home Association  (ASHNHA) shared  that it  did not                                                                    
agree  that  a one  percent  growth  rate for  Medicaid  was                                                                    
sustainable.   In    the   same   meeting,    school   board                                                                    
organizations  reported  that  the base  student  allocation                                                                    
(BSA)  real  spending  was  down  significantly,  and  every                                                                    
department was experiencing massive  turnover. He thought it                                                                    
was important to keep the information in mind.                                                                                  
Representative  Edgmon stated  he  had the  same concern  as                                                                    
Representative  Josephson.  He  thought  the  actual  budget                                                                    
process  was complex  and the  proposed policy  changes were                                                                    
not  inclusive of  the complexities.  He  argued that  there                                                                    
were  other  perspectives  that  should  be  considered.  He                                                                    
understood the intent was to  compare a 50/50 permanent fund                                                                    
dividend  (PFD) with  a full  PFD, but  he thought  the real                                                                    
world would  likely intervene in  the plan and it  would not                                                                    
play out  as projected. There  were many variables  that had                                                                    
not been considered, and costs  for things like Medicaid and                                                                    
education could increase dramatically.                                                                                          
2:50:17 PM                                                                                                                    
Representative Carpenter appreciated  the first bullet point                                                                    
on slide  7 and argued  that a 50  percent of POMV  draw was                                                                    
outlined in  statute. The real  question was how  the income                                                                    
should be determined. He thought  that using a 50 percent of                                                                    
POMV draw and using 21  percent of net earnings were equally                                                                    
legitimate strategies according to the law.                                                                                     
Representative  LeBon pointed  out that  50 percent  of POMV                                                                    
was not current law.                                                                                                            
Representative Carpenter understood  that the projections in                                                                    
the graph  on slide  13 were  following the  projections for                                                                    
growth of  the Permanent  Fund and its  earnings as  well as                                                                    
the fall forecast for oil and gas revenue.                                                                                      
Mr. Painter responded in the affirmative.                                                                                       
Mr. Painter advanced  to slide 14 and  addressed whether the                                                                    
baseline should be higher:                                                                                                      
    Several ongoing items in the Governor's budget are                                                                       
     funded with short-term federal funds:                                                                                      
     - DOC's DNA Tracking program: $1.1 million CSLFRF                                                                          
     (need to be replaced in FY24)                                                                                              
       AMHS: ~$82.0 million in place of UGF from federal                                                                        
     infrastructure bill (need to be replaced in FY27)                                                                          
       DOTPF: $22.4 million of FHWA and FAA funds (need to                                                                      
     be replaced in FY24/25)                                                                                                    
    In addition, the ARM Board decision not to fund                                                                          
     retiree health care is backed out in LFD's baseline                                                                        
     only for the statewide item. It would also have about                                                                      
     a $15.9 million UGF impact on agency budgets.                                                                              
Mr. Painter  moved to  slide 15  to discuss  some additional                                                                    
items  that  should  be  considered,  such  as  raising  the                                                                    
baseline. The  modeling showed what  might happen  when one-                                                                    
time federal  funds were replaced with  UGF. Altogether, the                                                                    
effected items  would cause  an increase  of $39  million in                                                                    
the next couple of years and  a $120 million increase in the                                                                    
long-term. If growth rate was  accounted for, the difference                                                                    
between  the governor's  budget  and the  baseline would  be                                                                    
increased. There  was a  minor difference  in the  first few                                                                    
years,  but  by  FY  31  there  was  an  over  $500  million                                                                    
difference  between  the  governor's   budget  and  the  LFD                                                                    
baseline.  If  the  legislature  felt  the  growth  rate  of                                                                    
inflation was insufficient, he  suggested that members might                                                                    
support a  policy change  in the  opposite direction  of the                                                                    
governor's proposal.                                                                                                            
Representative  Josephson asked  for  verification that  the                                                                    
assumption did  not address any fiscal  notes of legislation                                                                    
that had not yet passed, such as the Alaska Reads Act.                                                                          
Mr. Painter  responded that the governor's  10-year plan did                                                                    
not account for legislation that had not yet passed.                                                                            
Representative  Josephson  acknowledged that  although  most                                                                    
bills did  not pass,  there were hundreds  of bills.  It was                                                                    
impossible to  know which  bills would  pass in  the current                                                                    
year,  and it  was even  less possible  to know  which bills                                                                    
would pass in future years.                                                                                                     
Mr. Painter responded in the  affirmative and stated that it                                                                    
would  be  based on  policy  changes.  He relayed  that  the                                                                    
governor had  incorporated policy changes into  his baseline                                                                    
in  past years,  but  he had  not in  the  current year.  He                                                                    
encouraged  the legislature  to include  any desired  policy                                                                    
changes into its projections going forward.                                                                                     
Representative Josephson thought the suggestion was fair.                                                                       
2:56:30 PM                                                                                                                    
Vice-Chair Ortiz asked  about the origin of  the $82 million                                                                    
Alaska  Marine Highway  System (AMHS)  funding. He  wondered                                                                    
what would happen to the  funding once the federal money had                                                                    
been implemented.                                                                                                               
Mr. Painter replied that the  $82 million figure represented                                                                    
two other  figures combined. In  FY 22, the UGF  amount that                                                                    
was  distributed  to AMHS  only  represented  one year  even                                                                    
though it actually funded one  and a half years. The funding                                                                    
amount included  18-months' worth of other  changes totaling                                                                    
$59.4  million. The  governor was  also proposing  a service                                                                    
increase that would grow the  budget by $22.6 million, which                                                                    
brought the  number to $82  million. The $82  million figure                                                                    
represented  the service  level proposed  in the  governor's                                                                    
budget  and  not  the  current   service  level,  which  was                                                                    
slightly lower.                                                                                                                 
Vice-Chair Ortiz thought that AMHS  had been funded at about                                                                    
$140 million in FY 15.                                                                                                          
Mr. Painter did not know the numbers off hand.                                                                                  
Vice-Chair Ortiz  emphasized that although it  was a service                                                                    
increase as compared  to recent years, the  service was much                                                                    
lower than it had been in FY 15 and the years prior.                                                                            
Mr. Painter turned to slide  16 and noted that the committee                                                                    
had heard  a presentation from Callan  Associates earlier in                                                                    
the   week.  He   recalled  that   Callan   had  done   some                                                                    
probabilistic modeling of the  Permanent Fund for the Alaska                                                                    
Permanent  Fund Corporation  (APFC). He  explained that  DOR                                                                    
used to  run similar modeling, and  he wanted LFD to  have a                                                                    
similar  tool. The  next portion  of the  presentation would                                                                    
offer  a few  scenarios to  demonstrate the  capabilities of                                                                    
the modeling.                                                                                                                   
CONNOR BELL,  FISCAL ANALYST, LEGISLATIVE  FINANCE DIVISION,                                                                    
spoke  to slide  16. He  explained  that Callan  had a  more                                                                    
elaborate  model   than  LFD,  but  LFD's   model  was  more                                                                    
comprehensive. He paraphrased the slide as follows:                                                                             
    LFD developed a probabilistic model to enhance our                                                                       
     modeling capability. Unlike the Callan model, it is a                                                                      
     complete fiscal model with the budget and revenue as                                                                       
     well as the Permanent Fund.                                                                                                
       Results for Permanent Fund scenarios are similar to                                                                      
     what Callan's model produces.                                                                                              
    Runs 2,000 scenarios with varying assumptions for                                                                        
     Permanent Fund earnings, oil prices, and oil                                                                               
    Assumes LFD baseline budget, with only PFD amount                                                                        
     changing by scenario.                                                                                                      
    APFC 6.2% average return with 13.2% annualized                                                                           
     standard deviation.                                                                                                        
    Average oil price equals DOR's fall forecast. Applies                                                                    
     standard deviation equal to 34% of a given year's                                                                          
     average price.                                                                                                             
    LFD can run additional scenarios as requested by                                                                         
     legislators and staff.                                                                                                     
Mr. Bell added that  LFD's modeling held inflation constant.                                                                    
The LFD  model differed  in some ways  from Callan,  such as                                                                    
assuming that there would be  no inflation proofing until FY                                                                    
25.  He  explained  that  LFD  would be  happy  to  run  any                                                                    
scenarios  under  the  models  and provide  the  results  to                                                                    
3:02:29 PM                                                                                                                    
Mr. Bell advanced to slide  17 and discussed a chart showing                                                                    
a stress  test for a  statutory PFD. The vertical  black bar                                                                    
ranged   from  the   tenth  percentile   to  the   ninetieth                                                                    
percentile  of the  expected outcomes.  He highlighted  that                                                                    
the difference  between a  $20 oil price  and $30  oil price                                                                    
did  not reflect  a similar  difference in  overall revenue,                                                                    
while the  difference between an  $80 oil price and  $90 oil                                                                    
price  had  a  significant  impact  on  revenue.  Under  the                                                                    
statutory PFD,  the median deficit  was about $1  billion to                                                                    
$1.5 billion per year. However,  deficits of $2.5 billion or                                                                    
surpluses  up   to  $5  billion  were   also  possible.  The                                                                    
likelihood of the deficit being  above $2.5 billion in FY 23                                                                    
was about 10 percent.                                                                                                           
Representative  Carpenter clarified  that the  statutory PFD                                                                    
referred to  21 percent  of net earnings  and 50  percent of                                                                    
the determination of the dollar figure of the dividend.                                                                         
Mr. Bell answered in the affirmative.                                                                                           
Mr. Bell moved  to slide 18 and explained that  the chart on                                                                    
the slide was  the same as the  one on slide 17,  but with a                                                                    
PFD equal to  50 percent of POMV. The  chart represented the                                                                    
governor's budget  proposal. The  median deficit  was around                                                                    
$300 million to  $500 million, and surpluses  ranged from $4                                                                    
billion to $6 billion.                                                                                                          
Mr.  Bell advanced  to slide  19, which  was similar  to the                                                                    
previous two  charts but with  a $1,100 per person  PFD. The                                                                    
chart showed a $500 million to  $1 billion surplus and up to                                                                    
$700  million  in  deficits.  There were  a  huge  range  of                                                                    
outcomes,  many of  which were  particularly dependent  upon                                                                    
the price of oil and  production. There could be substantial                                                                    
payouts or small payouts of the dividend.                                                                                       
Mr. Bell reviewed slide 20  and discussed the probability of                                                                    
an ERA shortfall  by PFD scenario. Between FY 23  and FY 25,                                                                    
an  ERA  shortfall would  not  be  possible in  any  modeled                                                                    
scenario.  Currently,   there  was  a  healthy   balance  of                                                                    
unrealized gains in  ERA that would be realized  in the next                                                                    
few years  and increase  ERA. The possibility  of shortfalls                                                                    
increased  in FY  26, and  by FY  31 there  was almost  a 30                                                                    
percent  chance   of  overdraw   under  the   statutory  PFD                                                                    
scenario, a 23 percent chance  under the 50/50 PFD scenario,                                                                    
and  an  18  percent  chance under  the  $1,100  per  person                                                                    
3:08:09 PM                                                                                                                    
Representative Josephson asked Mr.  Bell if an ERA shortfall                                                                    
meant depletion of ERA in full.                                                                                                 
Mr. Bell responded  in the affirmative. He  clarified that a                                                                    
shortfall would  mean the  ERA balance was  zero and  all of                                                                    
the money in the Permanent Fund was in the principal.                                                                           
Representative Carpenter  noted that gross  domestic product                                                                    
(GDP) might  be a measure  of the  health of an  economy. He                                                                    
asked  what sort  of  growth was  assumed  under the  listed                                                                    
Mr. Bell  responded that  GDP was not  accounted for  in the                                                                    
specific  modeling.  The  most significant  factor  was  oil                                                                    
Representative  Carpenter commented  that most  Alaskans did                                                                    
not work in the oil industry.  He asked what would happen if                                                                    
there was a  two percent increase in GDP in  the next decade                                                                    
that reflected an increase in state spending.                                                                                   
Mr. Bell  responded that  LFD would be  happy to  provide an                                                                    
analysis that  assumed that  budgets grew  at a  higher rate                                                                    
than anticipated.                                                                                                               
Representative  Carpenter thought  the analysis  was key  to                                                                    
the legislature's  discussions. He  did not think  there was                                                                    
enough discussion  on how  to grow  the economy.  He thought                                                                    
there should  be discussions  particularly on  strategies to                                                                    
grow the private sector.                                                                                                        
3:12:03 PM                                                                                                                    
Representative Rasmussen was curious  how LFD derived the 18                                                                    
percent or 30 percent surety  that the ERA would be depleted                                                                    
by FY  26 or FY  31. She  thought there were  many variables                                                                    
that could not be easily predicted.                                                                                             
Mr. Bell  answered LFD  was modeling a  range of  oil prices                                                                    
and  PFD returns,  and even  the ranges  used were  somewhat                                                                    
subjective. He  relayed that  LFD did  not intend  to report                                                                    
that the  surety percentages were  precise, but  simply that                                                                    
the  percentages  were  based  on the  ranges  of  different                                                                    
Representative  Rasmussen  attempted  to  respond,  but  her                                                                    
response was inaudible.                                                                                                         
Co-Chair  Foster   noted  that   Representative  Rasmussen's                                                                    
response was inaudible due to cell phone service.                                                                               
Representative  Edgmon  understood  that  the  modeling  was                                                                    
subjective. He asked if the  current year was the first year                                                                    
during which LFD had used the modeling.                                                                                         
Mr. Bell responded in the affirmative.                                                                                          
Representative Edgmon  looked forward to the  modeling being                                                                    
developed more in the future  and was excited about modeling                                                                    
additional probabilities.                                                                                                       
Representative  Carpenter  asked  for clarification  of  the                                                                    
50/50 POMV column on slide 20.  He asked if it reflected the                                                                    
governor's plan.                                                                                                                
Mr.  Bell  answered that  it  did  not  include all  of  the                                                                    
governor's proposed  policy changes  or a  supplemental PFD.                                                                    
It strictly modeled paying out a  PFD equal to 50 percent of                                                                    
the POMV draw.                                                                                                                  
Representative  Carpenter   believed  the   governor's  plan                                                                    
rolled the  ERA into the corpus  of the fund, in  which case                                                                    
there would  be no ERA  shortfall because there would  be no                                                                    
ERA. He asked if it meant  there would not be a payment from                                                                    
the Permanent Fund and wanted to see the scenario modeled.                                                                      
Mr. Bell believed Callan's  modeling showed the information.                                                                    
Under the  governor's plan, the  principal and ERA  would be                                                                    
combined  and there  would be  no possibility  of overdraws.                                                                    
The modeling done by LFD  specifically showed how the budget                                                                    
modeling would play in-to overdraws.                                                                                            
Representative  Carpenter  wondered  if  there  would  be  a                                                                    
payment from  the Permanent  Fund under  a plan  where there                                                                    
was no ERA. He thought  the modeling for the scenario should                                                                    
be examined.                                                                                                                    
3:18:54 PM                                                                                                                    
Mr. Bell  answered that LFD  could run modeling  showing the                                                                    
information. In  the modeling on  slide 20, ERA served  as a                                                                    
last chance reserve to fill  deficits and the Permanent Fund                                                                    
would be  one entity, and  due to the  size of the  fund the                                                                    
likelihood  of overdrawing  was negligible.  He was  certain                                                                    
there would  still be a PFD  payout in a scenario  where the                                                                    
principal and ERA were combined.                                                                                                
Representative  Carpenter understood  that an  ERA shortfall                                                                    
meant  an ERA  depletion  in  full. He  wanted  to know  the                                                                    
probability of a shortfall in the scenario.                                                                                     
Mr.  Bell  responded  that  in  a  scenario  where  ERA  was                                                                    
combined  into  the  principal,  the  POMV  draw  would  not                                                                    
necessarily change  but it would  simply be paid out  of the                                                                    
fund itself.  There would be  a constitutional  barrier that                                                                    
prevented drawing any amount in excess of the POMV draw.                                                                        
Representative  Carpenter   stated  that  the   concept  was                                                                    
otherwise known as a spending limit.                                                                                            
Mr. Painter added  that in the model, the  failure point was                                                                    
the point at which ERA was  fully depleted. If the POMV draw                                                                    
was constitutionalized,  the failure  point would  change to                                                                    
the point at which CBR  was depleted. He emphasized that ERA                                                                    
draws  were   often  used  to  fill   budget  deficits,  and                                                                    
therefore  the likelihood  that  there would  be  a lack  of                                                                    
funds  to fill  deficits  would increase  because ERA  draws                                                                    
would no longer be possible.                                                                                                    
3:21:52 PM                                                                                                                    
Representative  Josephson asked  if slide  20 assumed  LFD's                                                                    
two percent inflation and did not incorporate fiscal notes.                                                                     
Mr. Bell responded  in the affirmative. The  slide assumed a                                                                    
two percent annual increase in agency operations.                                                                               
Representative  Josephson indicated  that  a  world with  no                                                                    
fiscal notes  would eliminate a  lot of bills. He  asked for                                                                    
verification that the FY 31  projections would only increase                                                                    
if fiscal notes were incorporated.                                                                                              
Mr. Bell  responded that the  projections would  increase if                                                                    
the  fiscal notes  were  revenue negative  and  led to  more                                                                    
HB  281  was  HEARD  and   HELD  in  committee  for  further                                                                    
HB  282  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair  Foster reviewed  the  schedule  for the  following                                                                    
day. He  shared that Co-Chair  Merrick would hold  a hearing                                                                    
on February 2,  2022 to hear for  HB 54, HB 90,  and HB 111.                                                                    
The bills  had amendment  deadlines in  the past,  but there                                                                    
would be new amendment deadlines because it was a new year.                                                                     
Vice-Chair Ortiz asked for clarification on the date of the                                                                     
Co-Chair Foster repeated the information.                                                                                       
3:25:01 PM                                                                                                                    
The meeting was adjourned at 3:24 p.m.                                                                                          

Document Name Date/Time Subjects
HFIN LFD 10yr to LFD Baseline Presentation 1-27-22 (002).pdf HFIN 1/27/2022 1:30:00 PM
HB 281 # 3 Baseline Agency Summary UGF.pdf HFIN 1/27/2022 1:30:00 PM
HB 281
HB 281 #1 Changes in House Baseline CS.pdf HFIN 1/27/2022 1:30:00 PM
HB 281
HB 281 #2 Baseline Agency Summary All Funds.pdf HFIN 1/27/2022 1:30:00 PM
HB 281
HB 281 #4 Baseline Transaction Compare All Agencies.pdf HFIN 1/27/2022 1:30:00 PM
HB 281
HB 281 CS FIN v.W Baseline Budget CS 012722.pdf HFIN 1/27/2022 1:30:00 PM
HB 281