Legislature(2005 - 2006)HOUSE FINANCE 519
01/21/2005 01:30 PM House FINANCE
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* first hearing in first committee of referral
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HOUSE FINANCE COMMITTEE
January 21, 2005
1:37:49 PM
CALL TO ORDER
Co-Chair Chenault called the House Finance Committee meeting
to order at 1:37:49 PM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Mike Kelly
MEMBERS ABSENT
Representative Eric Croft
Representative Jim Holm
Representative Carl Moses
Representative Bruce Weyhrauch
ALSO PRESENT
Joel Gilbertson, Commissioner, Department of Health & Social
Services; William Corbus, Commissioner, Department of
Revenue; Tom Boutin, Deputy Commissioner, Department of
Revenue; Brett Fried, Economist, Tax Division, Department of
Revenue; Janet Clarke, Director, Division of Administrative
Services, Department of Health and Social Services
PRESENT VIA TELECONFERENCE
Michael Williams, Chief Petroleum Economist, Department of
Revenue, Anchorage; Dan Dickinson, Director, Tax Division,
Department of Revenue, Anchorage
GENERAL SUBJECT(S):
OVERVIEWS:REVENUE PROJECTIONS, DEPARTMENT OF REVENUE
PROPOSED CHANGES IN MEDICAID REIMBURSEMENT /
DEPARTMENT OF HEALTH & SOCIAL SERVICES
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 24th Legislative Session, contact 465-
6814. After the 24th Legislative Session they will be
available through the Legislative Library at 465-3808.
TIME SPEAKER DISCUSSION
1:38:14 PM Co-Chair Convened the House Finance Committee
Chenault meeting to take up discussion on the
Department of Revenue, Revenue
Projections and the Department of
Health & Social Services, proposed
changes in the Medicaid reimbursement.
DEPARTMENT OF REVENUE
REVENUE PROJECTIONS
1:39:03 PM WILLIAM Provided members with handouts
CORBUS, outlining the revenue forecast for the
COMMISSIONER, upcoming year. (Copy on File).
DEPARTMENT OF He introduced his staff, Tom Boutin,
REVENUE Deputy Commissioner, Department of
Revenue; Brett Fried, Economist, Tax
Division, Department of Revenue; and
teleconferenced Michael Williams, Chief
Petroleum Economist, Department of
Revenue and Dan Dickinson, Director,
Tax Division, Department of Revenue in
Anchorage.
1:40:39 PM Commissioner Stated that revenue forecasting is
Corbus important work and that many
governmental decisions are based on
that forecast. Much work goes into
preparing it. He referenced Attachment
#1. (Copy on File).
1:42:14 PM Commissioner Referenced the Table of Contents, Page
Corbus 3, stating that it was the best, "quick
and dirty" source book for State
finances. He pointed out that Alaska
National Wildlife Refuge (ANWR) was the
example used throughout the handout.
1:43:59 PM Commissioner Noted tables on the next six pages,
Corbus while highlighting the Fall forecast.
The price projections listed on Table
2-4, Page 10: The price per barrel of
oil on 1/20/05 was $49.71.
Commissioner Corbus pointed out price
projections for the next several years:
· FY05 - $43.61 versus $28.30 last
spring
· FY06 - $34.50 versus $25.85 last
spring
· FY07 - $30.95 versus $22 last
spring
· FY08 - FY15 was $25.50, up $3.50
from last spring.
The Organization for Petroleum
Exporting Countries (OPEC) Price Goal
is $22-$28 dollars per barrel which
compares to the $28.30 projected from
last year.
1:46:23 PM Commissioner Reiterated that OPEC has indicated that
Corbus oil will be at between $22 and $28
dollars per barrel.
1:47:01 PM Commissioner The State is not certain that OPEC will
Corbus maintain market discipline in that
range.
1:47:32 PM Commissioner Addressed the "wild ride" price
Corbus volatility oil has moved through this
past year. Last year, he compared the
$15 dollar drop in 48 days; there was
then a rise caused by the anticipated
Iraqi war. He remembered a $15 dollar
drop in 37 days in 1991. The price
today is approximately $41 dollars, $7
dollars higher than a week ago. He
acknowledged that projecting prices is
difficult and there is great
volatility. There has been a change in
relationships between prices of oil.
When the Department provides a
forecast, they use the West Texan
Institute (WTI) intermediate code.
Alaska sells its oil to the west coast
with a differential in that price.
Historically, there has been a constant
relationship between prices. That
relationship does not hold as strong as
it had in the past.
1:50:53 PM Commissioner Addressed production and referenced
Corbus Table 2-6 - By FY2011, new oil
developments will be 48.1% of the total
production.
1:52:31 PM Commissioner Commented on Table 2-2, highlighting
Corbus the unrestricted general-purpose
revenue conversion years, 2004 through
2006, compared to the $2.36 billion
dollars for FY04. Spring, FY04, is
estimated at $1.96 billion dollars.
The higher numbers for FY05 reflect
higher oil prices. The total for FY06
is projected at $2.3 billion dollars.
Based on the fall revenue forecast, a
surplus of $653 million dollars is
projected given the average price of
$43.51 dollars per barrel.
1:54:23 PM Commissioner Continued, Page 4, Table 2-9 indicates
Corbus the Capital Budget Reserve (CBR) draw,
lasting until February 2011, assuming
the price and production information
presented and the $2.3 billion dollar
budget. Commissioner Corbus referenced
Table 2-8, looking into the future,
understanding that the State still has
a long run structural financial problem
that needs to be addressed in matching
reoccurring revenues with reoccurring
expenses.
1:58:44 PM Commissioner Addressed the actual year to date,
Corbus futures for the remainder time. He
pointed out that the futures for FY06
are significantly higher than $34.50.
The next update for the Department will
be April, 2005.
2:00:01 PM Representative Questioned the idea of "not trusting"
Joule OPEC projections.
2:01:26 PM Commissioner Commented that OPEC has stated that
Corbus they are considering reevaluating the
proposed price range. The Department
anticipates that change.
2:01:57 PM Representative Referenced Page 2, & asked when that
Joule information would be factored into the
projection. Commissioner Corbus
responded that ANWR was not included in
that table. The full impact of ANWR
will not be felt until after 2020.
2:02:44 PM DAN DICKINSON, Explained the process of preparing a
DIRECTOR, forecast every six months. He
(TESTIFIED VIA acknowledged that it is usually wrong.
TELECONFERENCEThe Department does attempt to provide
), TAX a reasonable model for determining
DIVISION, price formation in the specified time
DEPARTMENT OF period. An average is created using a
REVENUE, "best guess" scenario. A similar
ANCHORAGE process is used for a long-term
forecast. It is important not to
change the long-term numbers resulting
from recent news. He emphasized that
there is a tendency to be overly
optimistic or pessimistic during ups
and downs.
2:06:28 PM Mr. Dickinson Referenced Page 10 and how Alaska North
Slope (ANS) is priced relative to West
Texas Intermediate (WTI) prices. In
the last six months, the differential
has moved up about $6 dollars, which is
extraordinary. That information causes
concern when determining a forecast.
He referenced Attachment #3. (Copy on
File). The graph indicates the
absolute percentage error in
forecasting oil prices for the next
year's budget cycle. The graph
indicates a new price relationship
between WTI and ANS.
2:09:31 PM Mr. Dickinson Acknowledged that there are questions
regarding the historical norms for the
forecast. It is important to note the
volume indicated on Page 12. The graph
indicates about 30 different producing
areas, which added together provides
the information. Production is divided
into three categories:
· Producing fields at this time;
· Production coming from current
development; and
· Items under evaluation.
2:12:51 PM Mr. Dickinson Spoke to the bizarre period occurring
in early January in the North Slope
with warmer temperatures, resulting in
not getting as much oil out of the
ground at 12,000 barrels per day, a
small number. He outlined the four
areas of revenue:
*Federal numbers provided by Office of
Management and Budget (OMB;
*Investment numbers; and
*Other revenues.
2:14:31 PM BRETT FRIED, Page 37, Table 5-1, listed the other
ECONOMIST, TAX revenues except for the federal and
DIVISION, investment listings. The unrestricted
DEPARTMENT OF revenues are broken into different
REVENUE categories. He referenced Table 5-2,
the other tax, pointing out the actual
FY04 and projected FY05-FY06 figures.
Page 41, Table 5-2, referencing the
alcohol beverage tax, $16.3 million
dollars projected. From there, the
column drops down to restricted taxes.
50% of the tax from the alcohol
beverage tax goes into the prevention
treatment fund.
The cigarette column indicates
projected numbers also into FY07. The
reason for the increase in cigarette
tax revenue, is that the tax was
st
increased to $1.60 as of January 1.
The corporate income tax changed with
the creation of the Job Assistance Act,
which changed how long taxpayers could
claim their losses, from five to two
years. He identified fish taxes.
2:19:32 PM Mr. Fried Explained the "other tax" category.
2:20:06 PM Vice-Chair Asked about the drop in motor fuel tax.
Stoltze
2:20:33 PM Mr. Fried Stated that FY04 number was high
resulting from assessments from
previous years. There were big
assessments in those years resulting in
a higher amount.
2:21:01 PM Representative Referenced the tobacco taxes and asked
Hawker if that had been factored into the
proposed numbers. Mr. Fried responded
that it was not factored into the
forecasts. There was more revenue in
FY04 when it went into effect. The
Department is not sure of what the
source is of the additional revenue.
The future could indicate more revenue
with the increase in the tax rate.
2:22:36 PM MICHAEL Provided an overview of his personal
WILLIAMS, DR, background qualifications, earning a
TESTIFIED VIA doctorate in economics from a
TELECONFERENC, university in Colorado. He stressed
CHIEF that he has been involved in the energy
PETROLEUM field since his graduation in the early
ECONOMIST, '80's.
DEPARTMENT OF
REVENUE,
ANCHORAGE
2:25:29 PM Dr. Williams Spoke to the expansion of crude oil
production within the world market. He
reiterated that OPEC has been
discussing raising the price ceiling.
He emphasized that there is a growing
oil demand. Currently, there is a
"sellers market".
2:27:04 PM Dr. Williams Touched upon the differential concern.
He mentioned the hurricanes that
happened in the Gulf of Mexico,
knocking our many production platforms.
That produced a "sweet" crude oil and
the market needed additional crude oil.
The heavier crude oils were brought
from oils in the middle East, causing
the differential to expand. He spoke
to price volatility. He pointed out
that there has been a 5% change per day
since early January and offered to
address that change.
He commented on the absolute changes.
The daily changes in January have
averaged about 1.9%. On average, the
price change averaged 77 cents per
barrel per day. He pointed out that
this months volatility was similar to
that occurring in past years and
results from people's perspective of
the future.
2:30:43 PM Dr. Williams U.S. Energy reported a rise in the
crude oil stock prices. The world oil
system is affected by production
capacity and how that relates to a
stable system. He added that there is
little spare crude oil capacity but at
the same time, the international
projection is an increased demand which
is stressing the international system.
He stated that there is political
volatility in a number of world
situations. He predicted that the
crude oil prices would remain volatile.
2:33:11 PM Commissioner Stated that would complete the
Corbus presentation from the Department of
Revenue.
2:33:34 PM Co-Chair Meyer Asked if $500 million dollars was a
safe windfall prediction. Commissioner
Corbus explained that he was reluctant
to say a "revised projection". It is
anticipated at this time, and would be
approximately $150 million below.
2:34:30 PM Co-Chair Meyer Asked about any new revenue measures
being considered by the Department.
2:35:07 PM Commissioner Replied that the Office of the Governor
Corbus is evaluating alcohol taxes. He added
that the Percent of Market Value
(POMV), the Administration supported it
last session. Currently, the
Administration still considers it to be
"On the Table" with other proposals to
take advantage of the Permanent Fund,
addressing long-term fiscal problem.
2:36:44 PM Co-Chair Meyer Mentioned the Amerada-Hess dividends
being a separate consideration. He
applauded the work provided by the
Department in determining the oil
forecasting. He stated that the State
could control the oil production and
how that is increased statewide. He
inquired about dissatisfaction of the
oil companies with the administrative
order to change the tax cut and asked
how it could impact future production.
2:37:58 PM Commissioner Replied that the Administration has
Corbus been "heavily supportive" of the oil
industry to increase production. He
noted line items, which have boosted
that industry. The Administration
stated that the situation at Prudhoe
Bay was unique.
2:41:12 PM Mr. Dickinson Interjected, that there was a tax
credit available for exploration.
There are five companies that are
looking at that credit at this time.
He added, that the companies want to
know what their tax will be before they
invest. They can apply for an advanced
ruling before they invest through
regulation. He stressed that option is
available before making a major
investment and added that the biggest
consideration is the price to the oil
companies in order that it is
attractive. There are concerns that
can be controlled and will be through
advanced rulings.
2:43:51 PM Co-Chair Meyer Understood that the ruling would be
retroactive and asked if heavy oil
would then be excluded. Co-Chair Meyer
voiced his concern with that.
2:44:35 PM Commissioner Understood the concern with the "heavy
Corbus oil" issue and that the Department was
available to meet with the owners of
those fields to discuss their concerns.
He pointed out that there are
administrative remedies.
2:45:11 PM Co-Chair Meyer Asked when the additional revenue would
be available. Commissioner Corbus
thought that revenue would be available
st
immediately by February 1. Mr.
Dickenson interjected that the actual
payment would be one month delayed and
would start the last day of March.
2:46:13 PM Co-Chair Meyer Recommended the State's need to
diversify in planning long-range fiscal
issues. He spoke to the Percent of
Market Value and other reasonable
revenue generating measures.
2:46:56 PM Vice-Chair Referenced the section addressing
Stoltze business licenses and asked if that had
met the expectation for increased
revenue.
2:47:48 PM Mr. Fried Pointed out that information was
included in the Charge for Services
section. Mr. Dickinson interjected
that was listed on Page 42, footnote
#2.
2:48:16 PM Mr. Fried Stated that he would get back to the
Committee regarding if the increase
would meet the expectations. Vice-
Chair Stoltze noted that he had voted
for that concern and now was "upset"
that he had. He requested more
information.
2:49:20 PM Representative Questioned if it was the intent that
Hawker the Percent of Market Value proposal
would raise revenues. He recalled that
was not the purpose of that proposal
but rather to protect the Permanent
Fund. He requested clarification.
Commissioner Corbus acknowledged that
the Percent of Market Value is for the
protection of the fund, however, it
could open up opportunities to make
funds available to fund government.
2:50:24 PM Representative Asked if it would make more
Hawker opportunities than currently available.
Commissioner Corbus responded that the
Legislature has the authority to access
the Permanent Fund, but historically
has chosen not to do that.
2:51:06 PM Representative Understood those comments to mean that
Hawker the Legislature does in fact have the
authority to access the earnings
reserve and that had not been changed
in any way. Commissioner Corbus
agreed.
2:51:27 PM Representative Asked about the Internal Revenue
Kelly Service's (IRS) letter regarding
drilling and if it could be changed by
the Governor or the Legislature.
2:51:53 PM Mr. Dickinson Replied that there are conditions under
which that letter could be changed but
there would have to be good reason to.
In response to concerns voiced by Vice
Chair Stoltze, he stated that the
letter establishes conditions to be
met. In FY03, the revenues generated
were $2.1 million from business
licenses.
2:53:00 PM Co-Chair Noted that would conclude the
Chenault presentation from the Department of
Revenue.
Department of Health & Social Services
Proposed Changes in Medicaid
Reimbursement
2:54:59 PM JOEL Provided the Committee with a handout,
GILBERTSON, Attachment #5. (Copy on File). He
COMMISSIONER, introduced Janet Clarke, Director,
DEPARTMENT OF Division of Administrative Services,
HEALTH & Department of Health and Social
SOCIAL Services.
SERVICES,
2:56:59 PM Commissioner Medicaid currently insures about 128
Gilbertson thousand Alaskans. That budget exceeds
$1 billion dollars in total federal
funding in FY06. There is some
volatility in the State's match rate.
Federal Medical Assistance Percentage
Program (FMAP) was calculated annually,
using a three-year average of per
capita income, to determine if the
State is a wealthier or poorer state,
which then determines the amount paid
by the federal government. Alaska
historically has been a 50/50 state.
There are some services paid by
Medicaid that are "enhanced" Medicaid
services. Examples of that are the
State's children's health insurance
program and the breast and cervical
cancer services. He added that 100%
reimbursement is received for the
Alaska Natives.
3:00:13 PM Commissioner Pointed out that up until 1997, the
Gilbertson Medicaid match rate for Alaska has been
50% federal and 50% State. In 1997,
Senator Frank Murkowski argued for the
core formula to enhance Alaska's
Medicaid match rate for three years.
That provided a 9.8% increase for three
years. Costs for providing care in
Alaska are much higher than other
states. When that sunset, the formula
continued to be flawed. In 2001,
another piece of legislation won
passage, again by Senator Murkowski,
which adjusted the formula for a period
of five years. The result is an
enhanced match rate for the State of
st
Alaska. That sunsets on October 1,
2005 and reverts back to the underlying
formula calculation for the State. It
will result in a drop of 7.5 points,
caused by the 5-year sunset and the
fact that the per capita income has
increased statewide.
3:03:52 PM Commissioner Stated that a major change will occur
st
Gilbertson October 1, 2005, and includes a change
to the manner in which per capita
income is determined for the nation.
It will include employer contributions
to employee retirement plans. Such an
adjustment means $53 million dollars
for per capita income. The State
Administration has an obligation to fix
this problem in statute. For FY06, the
Administration has chosen not to fund
that gap and is waiting for the U.S.
Congress to fix it. The Administration
has been working with the U.S.
Congressional delegation to fix the
concern before the end of this year's
budget cycle.
3:06:49 PM Representative Asked about the loss and whether Alaska
Hawker was the only state affected.
Commissioner Gilbertson responded that
every year, there are changes in the
Medicaid match rates. Some states go
up and some down. Alaska experiences
the changes the most and Wyoming is the
state next affected by a three-point
drop. Representative Hawker commented
that there are other states in this
predicament and that Alaska does not
stand-alone. Commission Gilbertson
agreed that other states do have an
interest in preventing this reduction.
He reiterated that Alaska is the most
expensive State regarding delivery of
health care services.
3:09:40 PM Representative Requested a definition of FMAP, fair
Hawker share and pro share issues.
Commissioner Gilbertson explained that
the FMAP is the Federal Medicaid
Assistance Program and deals solely
with determining the ratio of Medicaid
costs bore by the State and the federal
government. It is determined by a
three-year average of the State's per
capita income as compared to the
national per capita income.
Fair share is a plan developed in the
State of Alaska in FY01, to oversee
Medicare and Medicaid to allow for
permissive transfer for funds through
enhanced Medicaid payments to tribal
operated facilities. That plan went
through a denial and currently is being
litigated by the State of Alaska.
Pro share deals with permissive
intergovernmental transfers used to pay
State's share of the Medicaid match.
Private pro share is an approved State
plan amendment, submitted by the State
of Alaska, in which, the State does
make enhanced payments to the private
health care system.
3:13:31 PM Co-Chair Meyer Questioned if the Department's budget
would reflect the reduction to the
FMAP. Commissioner Gilbertson
responded that the Governor's FY06
budget does not include funding for the
withdrawal from the federal budget for
that amount. It is intended that the
U.S. Congressional delegation will be
able to "fix" the Medicaid reduction
through legislation.
3:14:54 PM Co-Chair Meyer Commented that $53 million dollars is a
large risk. Commissioner Gilbertson
reiterated the he thought there would
be a supplemental requested and
granted.
3:15:27 PM Co-Chair Meyer Asked how Alaska compared to other
states in providing the Medicaid
program.
Commissioner Gilbertson responded that
the Medicaid rates and the amount
provided to the provider are fairly
high. Facilities are paid based on
costs. Alaska rates that go out to the
providers are high.
He pointed out the eligibility
standards and the areas within the
State which have authority over its'
Medicaid program:
*Optional services;
*Optional eligible categories; and
*Rates
3:17:23 PM Commissioner Reiterated that the State has generous
Gilbertson programs. He commented on capping
benefit services.
3:18:13 PM Co-Chair Meyer Asked for an explanation of the Senior
Care Program proposed by the Governor.
3:18:44 PM Commissioner Responded that the Senior Care Program,
Gilbertson which provides supplemental funding for
seniors for prescriptive drugs, was
passed in the last legislative session
st
and is due to expire on January 1,
2006. The Governor intends to propose
legislation this session to enhance
that program. He listed the criteria
for the program, highlighting "Part D"
for the prescription drugs. That
section has its' own premium for those
seniors who are 300% below the poverty
line.
He added that there is currently
proposed legislation in cooperation
with the Mental Health Trust, which
will provide preventative dental
services for seniors.
3:21:57 PM Co-Chair Meyer requested more in-depth overview of the
proposed program at a future date.
3:22:22 PM Representative Asked if there were guidelines being
Kelly considered to help people move off and
out of the system.
Commissioner Gilbertson responded that
the Department works aggressively to
help promote self-sufficiency through
job training skills and other means.
For some people, they will never become
"self sufficient". This Administration
supports maintaining a strong safety
net.
Commissioner Gilbertson acknowledged
that some rural concerns address access
and under-serviced issues. Those
concerns differ from various sections
of the State. He stressed the
Department's success rate in moving
people out of the program. It has
dropped 58%.
3:24:42 PM Co-Chair ADJOURNMENT
Chenault
The meeting was adjourned at 3:25 P.M.
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