Legislature(1995 - 1996)
01/12/1996 01:36 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
January 12, 1996
1:36 P.M.
TAPE HFC 96-2, Side 1, #000 - end.
TAPE HFC 96-2, Side 2, #000 - end.
TAPE HFC 96-3, Side 1, #000 - end.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:36 p.m.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly
Representative Kohring
Representatives Mulder and Therriault were absent from the
meeting.
ALSO PRESENT
Nancy Slagle, Director, Division of Budget Review, Office of
the Management and Budget, Office of the Governor; Mark
Boyer, Commissioner, Department of Administration; Tamar
diFranco, Special Assistant, Department of Revenue.
SUMMARY
GOVERNOR'S BUDGET OVERVIEW:
ANNALEE MCCONNEL, DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR
ANNALEE MCCONNEL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR noted that Governor Knowles presented
the Legislature with the first year of a multi-year plan,
designed to close the budget gap in 6 years. She asserted
that some issues cannot not be resolved in one year. She
identified the fastest growing areas of the budget: AFDC,
Welfare, Medicaid and the Department of Corrections's
budget. She emphasized that the Administration is using an
interdepartmental approach to bring the growth of these
programs under control. She noted that the Administration
is developing a long range plan for the Department of
Corrections.
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Ms. McConnell pointed out that the Administration is working
to streamline programs in order to reduce the effort and
cost of administration and increase the level of direct
services.
Ms. McConnell observed that technological improvements often
cannot be implemented in a single year.
Ms. McConnell addressed the issue of budget reductions
versus increased taxes. She pointed out that approximately
$40.0 million dollars in agency cuts were combined with the
$56.0 million dollar capitalization of the Mental Health
Trust in the FY 96 budget. She maintained that there were
no major fee increases or tax proposals included in the FY
96 budget. She maintained that inflation has been absorbed
into the budget in previous years. She noted that the fuel
tax has not been raised since 1961. The last alcohol tax
increase was in 1983. She asserted that the Administration
is not starting with user fees and taxes without looking at
the necessity to focus on cuts. She acknowledged efforts of
past legislatures and governors to control the growth of
state spending.
Ms. McConnell provided members with a chart detailing
expenditures of state funding (Attachment 1). She noted
that the total $2.3 million dollar state operating budget
can be broken down as follows:
* State Services & Operations - $1,077 million
dollars;
* Grants/Formula Programs for Individuals - $349
million dollars;
* Grants/Formula Programs to Non-Profits - $128
million dollars; and
* Local Assistance: Schools & Local Governments -
$802 million dollars.
Ms. McConnell stressed that the Administration looked at
proposals and ideas for reducing costs of services across
the State and the impacts of each action. She noted that
many proposals will take more than one year to implement.
She emphasized the need to look at multi-year proposals.
Ms. McConnell restated that the Administration emphasized
interdepartmental solutions to problems. She pointed to the
success of the interdepartmental approach taken in regards
to criminal justice issues.
Ms. McConnell referred to recommendations of the Long Range
Financial Planning Commission (LRFPC). She noted that the
Governor outlined his recommendations in regards to the Long
Range Financial Planning Commission's plan in his State of
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the State address on January 11, 1996. Ms. McConnell
assured members that no one area is focused for or protected
from the impact of reductions.
Ms. McConnell noted that there are services that citizens
are willing to pay for in the form of program of receipts.
She noted that services delivered and paid for through state
government do not result in a reduction in total state
spending. She noted that program receipts that are tied on
a one to one basis to the service delivered have been
identified in the budget plan as designated program
receipts. She observed that funding for occupational
licensing is based on money collected from the licensing
process. She noted that some program receipts are a blend
of state support and user fees such as the state park and
recreation system. She suggested that users can
appropriately pay for services provided by state programs.
Ms. McConnell provided members with a handout: Comparison
of the Budget Gap between FY 96 and FY 97 (Attachment 2).
She reviewed Attachment 2. She noted that total oil
revenues are projected to decline by $43.7 million dollars
in FY 97. She noted that the State received an Executive
Life settlement of $72.5 million dollars in FY 96 which will
not be received in FY 97. She noted that there will also be
a $20 million dollar reduction in dividends from AHFC. She
noted that there will be $51.8 million dollars in increases
over FY 96 from expenditure reductions, and a shift from
state support to user support. She observed that the
Administration's budget includes an increase of $80.0
million dollars in increased fuel, tobacco and alcohol
taxes.
Co-Chair Hanley noted that the Department of Revenue
underestimated FY 95 corporate income tax revenues by
approximately $194 million dollars.
TAMAR DIFRANCO, SPECIAL ASSISTANT, DEPARTMENT OF REVENUE
testified that the FY 96 forecast reflects increases in
corporate income taxes as compared to the spring 95
forecast. She stated that corporate receipts are expected
to be $185 million dollars in FY 96 and $179 million dollars
in FY 97.
Ms. McConnell provided members with a cut sheet summarizing
the Governor's FY 96/97 budget plan from the Executive
Budget Book (Attachment 3). She noted that the plan shows
total funds as well as general funds. She reviewed
attachment 3. She noted that the spreadsheet also depicts
total general funds without designated program receipts.
Representative Martin maintained that the public needs to
see the "true cost of government, no matter where the
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resource is coming from." He referred to shared taxes
passed directly to municipalities. Ms. McConnell noted that
information regarding shared taxes are located in footnotes
to the spreadsheet. She observed that shared taxes are
indicated for accounting purposes. She emphasized that
shared taxes are passed on to municipalities and do not
effect the state's spending level.
Representative Martin referred to University of Alaska's
corporate receipts of $29 million dollars. He questioned
how these will be accounted for in the budget. Ms.
McConnell responded that the total spectrum of spending
sources will be demonstrated and compared to FY 96.
Co-Chair Hanley asked if the FY 97 budget for the Alaska
Court System is shown at the FY 96 level. Ms. McConnell
replied that the Administration included an increased FY 97
budget request for the Alaska Court System in the form that
it was received. The spreadsheet assumes that the
Legislature will not approve additional funding. Co-Chair
Hanley pointed out that there is an inconsistency between
the legislation and the Executive Budget Book. He noted
that the legislation contains an increase of $2.3 million
dollars above the spending plan.
Representative Brown asked the percentage of federal
contribution in the $3.0 billion dollars listed as other
funds. Co-Chair Hanley observed that the Legislative
Finance Division is working to identify the source of other
funds. He noted that there is an increase in total other
funds for FY 97. Ms. McConnell noted that the Governor's
Budget Summary for Fiscal Year 1997 contains information on
page 13 regarding other funds. Ms. McConnell assured
members that the Administration will continue to attempt to
better identify other funds.
In response to a question by Representative Martin, Ms.
McConnell explained that increased personnel costs, due to
negotiated raises, were incorporated into the personal
services line in each department. She explained that the
Administration wished to understand the increased cost for
personnel in order to accurately decide what cuts are needed
in program services and streamlining to achieve their budget
goals.
Ms. McConnell noted that the proposed increase for non-
represented employees is structure in the same manner as for
the negotiated contracts. She stated that contracts were
negotiated at half of the cost-of-living increase with a
limit of 1.5 percent.
(Tape Change, HFC 96-2, Side 2)
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In response to a question by Representative Martin, Ms.
McConnell explained that the University of Alaska received
an increase for labor contracts. She further explained that
after personnel increases were factored the entire
University of Alaska budget was subjected to revised funding
levels based on policy decisions.
Co-Chair Hanley observed that personnel increases due to
contracts were included in all agencies. Personnel
increases were not added into the Legislature or Court
System budgets. Ms. McConnell noted that contracts were
funded with the exception of the Public Safety Employees
Association and Correspondence Schools. Ms. McConnell
stressed that there will not be separate legislation for
personnel increases for contacts that were submitted prior
to the October deadline. Legislation may be submitted for
contracts received by Office of Management and Budget after
that date.
Co-Chair Hanley asked if the Administration had analyzed the
cost of merit increases in FY 97. Ms. McConnell stated that
they did not perform a FY 97 analysis of merit increases.
She emphasized that Position Authorization and Control
System (PAC) runs adjust for the person who is actually in
the job. Ms. McConnell clarified that non-union personnel
increases are estimated at $700.0 thousand general fund
dollars.
Ms. McConnell provided members with a handout detailing
items transferred from the Capital Budget to the Operating
Budget (Attachment 4). She emphasized that the
Administration's review of capital appropriations attempts
to determine if appropriations should be considered annual
items which belong in the operating budget. Co-Chair Hanley
assured Ms. McConnell that the Legislature would work with
the Administration to identify items that should be
transferred to the operating budget.
Representative Parnell asked if all the maintenance items
have been brought into the operating budget. Ms. McConnell
replied that regular maintenance items were transferred to
the operating budget. Co-Chair Hanley suggested that a
comparison of capital appropriations over several years
would be beneficial.
Ms. McConnell noted that there has not been a separate
expenditure for gravel in the Department of Transportation
and Public Facilities. Co-Chair Hanley suggested that
perhaps there should be a one time capital expenditure for
this year to fund requirements from past years and an on
going expenditure for future years.
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Representative Parnell asked if vehicles were included in
the estimates for Trooper replacement equipment in
Attachment 4. Ms. McConnell stated that vehicles were not
included.
Ms. McConnell emphasized the need to "get a handle" on
ongoing maintenance and regular renewal and replacement
costs. She stressed that it is not going to do any good to
add new projects if maintenance needs are not covered. She
accentuated that a plan needs to exist to provide for
regular renewal, replacement and routine maintenance in
agency budgets.
Representative Navarre observed that, in past years, items
have sometimes been shifted to the capital budget to lower
agency's operating budget. He spoke in support of the
Administration's approach. Co-Chair Hanley agreed that
necessary adjustments should be made in the FY 96 and FY 97
budgets so that they can be compared appropriately.
Representative Grussendorf questioned why the Renter's
Rebate Program was maintained while the Senior Citizen's
Property Tax Exemption was discontinued. Ms. McConnell
noted that local municipalities can maintain a senior
citizen's property tax exemption. She emphasized that local
government's would not offer a renter's rebate.
Representative Martin noted the need to control the growth
of formula programs. He asked if the Administration's FY 97
goal of $10 million dollars below FY 96, for formula
programs, is realistic. Ms. McConnell provided members with
spreadsheets detailing formula programs in total funds and
general funds (Attachments 5 & 6). She stressed the shift
away from an emphasis on processing welfare claims and an
increased stress on job training and placement effort. She
noted that the demand in education is estimated at a slight
increase. Non-general fund support to the foundation
formula will be increased through the Public School Fund.
Ms. McConnell stressed that in order to make reductions
there must be some statutory changes. She noted that $13.0
million dollars of new revenues identified by the
Administration require statutory changes.
In response to a question by Representative Brown, Ms.
McConnell observed that Alaska has the highest population
growth rate of residents over 65 years of age in the nation.
She observed that the Longevity Bonus Program will grow by
$350.0 thousand dollars if there are no statutory changes.
She stated that the Administration's budget assumes that
Medicaid costs will be held steady by an increase in job
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training and federal changes to Alaska's growth rate
allowance in Congress.
Ms. McConnell observed that the Front Section was
reorganized to aggregate programs. Departments were placed
into alphabetical order. She observed that the
Administration has recommended some changes in the
appropriation structure. She maintained that the splitting
of programs between Budget Request Units has hampered the
Administration's ability to efficiently manage and
streamline programs. She acknowledged that public policy
decisions need to be made in regards to particular services.
She maintained that efforts to aggressively downsize and
control supplemental requests will be aided by greater
flexibility in management.
Ms. McConnell noted that performance measures were included
for each department.
Ms. McConnell provided members with a schedule of debt
service (Attachment 7) and a spreadsheet of loan programs
cash flow analysis (Attachment 8).
Representative Parnell asked if the Governor has a fiscal
plan to close the fiscal gap and balance the budget in six
years.
Ms. McConnell replied that the Administration is working on
a modification of the Long Range Financial Planning
Commission's (LRFPC) recommendations with some adjustments.
She noted that an initial plan has been laid with concerns
and approvals of different elements of the plan. She
observed that the Governor felt it was appropriate and
necessary to establish a time frame beyond the year 2000.
Representative Parnell questioned the format the Governor's
fiscal plan would take.
Ms. McConnell noted that the Governor outlined the direction
that he wants to take and the values he will use in
evaluating changes to suggestions that have been made.
Co-Chair Hanley asked if the Legislature would see a
spreadsheet from the Governor outlining his six year plan.
He noted that the Governor expressed a preference for an
income tax over capping the dividend. He questioned if the
Governor would wait to see what direction the Legislature
takes.
Ms. McConnell stressed that the Administration will be
working to assure the numbers add up in order to balance the
budget in no more than six years. She stressed that "we
sort of have to work both ends toward the middle, we've got
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a target of six years in our minds and some framework for
how those steps might fit." She expressed the hope that the
administration and the legislature will be able to work
together to fashion something that will provide a reliable,
secure and realistic approach to closing the budget gap.
Representative Parnell stated that he presumed budget
deliberations this year would be part of the six year plan.
Ms. McConnell expressed the desire to set direction early in
the session. She noted that Speaker Phillips has suggested
holding hearings in the first couple weeks of the
legislative session on the plan.
(Tape Change, HFC 96-3, Side 1)
Ms. McConnell spoke in support of an overall plan developed
jointly by the Legislature and the Governor.
Co-Chair Hanley suggested that the Legislature is going to
have to propose the starting point for deliberations. He
summarized that the Governor is not going to come out with a
six year plan. He reiterated that the Governor wants to
work jointly with the Legislature.
Representative Parnell noted that the Governor, in his State
of the State Address, took a significant portion of what the
LRFPC adopted. He noted that the Governor disagreed with
capping the permanent fund dividend and questioned if the
Governor agreed with other points in the first three years
of the plan.
Ms. McConnell replied that the Governor has not addressed
all the proposals in the second and third years of the plan.
She noted that the Administration has not addressed the
Commission's recommendation for doubling of the motor
vehicle registration fees or the specific numbers that were
recommended for various resource industry tax increases.
She spoke in support of dialogue between the Administration
and the Governor with the recommendations of the Long Range
Financial Planning Commission.
Co-Chair Hanley reiterated his desire to have the Governor
take a position in regards to aspects of the Long Range
Financial Plan.
Ms. McConnell asserted that the Governor has specifically
addressed all of the elements that were in the Commission's
first year recommendations. She maintained that the items
that he agrees with are in the budget. She stressed that
levels for proposed taxes on alcohol, tobacco and motor
fuels were addressed. She reiterated that the Governor has
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stated that he does not agree with the recommendation to
reduce the permanent fund dividend at this time. She added
that the Governor thinks that other tools should be brought
into place prior to a cap on dividends. She pointed out
that if a particular tool is not implemented in the first
year its equivalent dollar amount in savings must be found
through a different tool.
Representative Navarre stressed the need for leadership. He
suggested a budget summit which would allow members of the
administration, members of the Senate and the House to reach
a consensus. He maintained that it is vitally important
that something be done this year.
Representative Martin summarized that the Administration's
position is that a solution cannot be found in one year. He
questioned if the Governor supports a ballot question
concerning capping permanent fund dividends. He agreed that
the State's fiscal solutions will not be found in one year.
He asked that the Governor clarify his position in regards
to the Permanent Fund.
Representative Brown expressed support for the placement of
a six year plan on the ballot in 1996. She emphasized the
need to resolve issues regarding the Constitutional Budget
Reserve. She anticipated that it will be difficult to reach
agreement on the first year recommendations of the
Commission.
Representative Brown referred to the fiscal plan proposed by
Dave Rose. She expressed support for the plan to insulate
the principle of the Permanent Fund. She maintained that
significant solutions are needed for a large problem.
Representative Navarre observed that the Long Range
Financial Planning Commission's recommendations were based
on hard work by intelligent Alaskans who are committed to
obtaining a solution. He noted that proposals regarding
permanent fund dividends are politically difficult. He
urged that debate go beyond the political spectrum and into
a policy spectrum to reach consensus among the leadership of
the State. He cautioned that a lack of action will
accelerate the problem. He asserted that the State's
current level of expenditure is far below that of 10 years
ago when adjusted for inflation. He maintained that
significant action has been taken to reduce the State's
budget by past legislature's and Governors.
Co-Chair Hanley asked when the supplemental request would be
available. Ms. McConnell replied that they hoped to have it
prepared prior to the 30 day deadline. Co-Chair Hanley
asked when the capital budget request would be prepared.
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Ms. McConnell could not provide a specific date. She stated
that the Administration is working on the out year portion
of the plan.
Co-Chair Hanley asked for additional information regarding
the foundation formula. He asked if there will be a carry
forward as far as the estimates for last fall. He
acknowledged that it is fairly flat for this year.
Co-Chair Hanley asked Ms. McConnell to provide him with
lapsed balances of the school debt program.
Representative Martin referred to the Exxon Valdez Oil Spill
Settlement (EVOSS). He observed that the allocation has
been increased. He suggested that these funds should be
considered in the total budget. He observed that these
funds will end in six years. He questioned if the state
will be expected to assume the cost of programs now funded
from the EVOSS funds.
Representative Kelly noted that Alaska Rural Development
Assistance grants (ARDORs) have been moved into the budget
of the Alaska Industrial Development and Export Authority
(AIDEA). Ms. McConnell emphasized that ARDORs are an
appropriate use of AIDEA resources. She noted that the
Administration is working with AIDEA to develop a more
aggressive and integrated effort in rural Alaska.
In response to a question by Representative Kelly, Co-Chair
Hanley observed that part of the education foundation
formula is being funded by interest from the Public School
Fund. Ms. McConnell pointed out that other funds have been
included in the foundation formula. She emphasized that it
is not a change in funding source. Co-Chair Hanley
expressed concern that an increased one time appropriation
will result in a larger general fund contribution in FY 98.
Ms. McConnell stressed that the Administration is working to
prevent that scenario.
ADJOURNMENT
The meeting adjourned at 3:31 p.m.
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