Legislature(2007 - 2008)HOUSE FINANCE 519
01/17/2008 01:00 PM House FINANCE
| Audio | Topic |
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| Start | |
| Overview of Governor's Proposed Fy 2009 Budget | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
JOINT
HOUSE FINANCE COMMITTEE
SENATE FINANCE COMMITTEE
2008 January 17, 2008
CALL TO ORDER
Co-Chair Meyer called the Joint House Finance and Senate
Finance Committee meeting to order at 1:09:16 PM.
Representative Reggie Joule
Representative Mike Kelly
Representative Mary Nelson
Representative Bill Thomas Jr.
SENATE MEMBERS PRESENT
Co-Chair Hoffman
Senator Huggins
Senator Dyson
Senator Elton
Senator Olson
Senator Thomas
MEMBERS ABSENT
Co-Chair Stedman
ALSO PRESENT
David Teal, Director, Legislative Finance Division; Senator
Gary Stevens; Representative David Guttenberg; and
Representative Bob Buch.
PRESENT VIA TELECONFERENCE
None
SUMMARY
^OVERVIEW OF GOVERNOR'S PROPOSED FY 2009 BUDGET
1:10:41 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, stressed
his aim was not to present the Governor's Budget, but to
point out potential topics for discussion. Past Legislative
Finance Division reviews of the Governor's budget have
followed a simple format that showed the revenue available,
the spending, the deficit, agency budget highlights, and
some differences in presentation. He stated that in earlier
days budgets were just a "statement of expenditures" for the
upcoming fiscal year. This "bottom line" information is
still available, as shown in the "State of Alaska Fiscal
Year 2009 Governor's Budget fiscal Summary." (Copy on file)
He stated that the revenue for Fiscal Year 2009 was
projected to be $5.2 billion, with expenditures of $5.6
billion, and a surplus of $655 million.
Mr. Teal went on to explain that the present budget was
different since it "looked backward and forward" as well as
at the current year. He asserted that the "surplus" was what
made the difference. He indicated that last year the
Governor came in with what looked like a surplus, but after
deducting $500 million from the Public Education Fund and
taking away $150 million as an unallocated reduction, there
was no surplus in the current account. Last year, the
anticipated revenue for FY 09 was less then anticipated
expenditures requested by the Governor. He maintained that
this year's surplus was real and big.
Mr. Teal informed that he was not going to discuss the
Capital Budget. He wanted to focus on the Governor's
statewide policies, not the technical points. He mentioned
two initiatives. The first was a three-year budget plan; the
second was "savings" and how the Governor intended on using
the surplus.
1:15:46 PM
Mr. Teal pointed to a graph from the Office of Management
and Budget, dated December 10, 2007, (copy on file.) The
graph reflected the Governor's assertion that the budget
grew from $2.2 billion in FY 03 to $4.3 billion in FY 07,
approximately 14 percent growth per year, and showed that
the Governor planned to slow growth to limit the budget to
$4.7 billion in FY 11. He asserted that the point was that
the FY 11 budget would be held to $4.7 billion, which equals
equal the projected FY 11 revenue. He expressed concern on
how this could be achieved within the goal of transparency.
Mr. Teal observed that the FY 09 budget was already $4.6
billion. The Governor's Education Plan called for increases
of $80 million a year, which surpasses the limit and does
not include Medicaid growth ($50 to $100 million a year),
nor the use of $150 million from the Capitol Investment
Income Fund. He maintained that when you pull from the
Capitol Investment Income Fund, which is a savings account,
General Fund spending is reduced. In order to maintain FY 09
in future years [and pull from the Capitol Investment Income
Fund] general fund spending will need to be reduced. He
mentioned that the $300 million in bonds was the same sort
of issue.
Mr. Teal thought the FY 11 budget would be closer to $5.5
billion budget than $4.7 billion, which left the question of
how to make a $5.5 billion budget look like a $4.7 billion
budget. He maintained that the Governor intended to achieve
this goal by draining savings.
1:18:38 PM
Mr. Teal turned to the Public Education Fund handout,
"Public Education Fund - Cash Flow Mechanics." (copy on
file) The legislature made a one billion dollar deposit last
year allowing FY 09 to start with $922 million. He pointed
to line 7, which explained that K-12 expenditures are $832
million and Pupil Transportation added another $53 million.
He maintained that the Legislature reached the goal of
setting aside enough money in the Public Education Fund to
pay for education one year in advance. He explained that the
Governor intended to deposit $1.6 billion as a supplemental
deposit, bringing the balance to $2.5 billion, and spending
a total of $1,026.5 billion. The budget will then have a
surplus of $1.4 to $1.5 billion, as shown on line 21 of the
graph. There is also a $141 million dollar fiscal note to
fund the Task Force's recommendation and another billion
dollar deposit, leaving a total of $2.6 billion in the Fund,
which the Governor does not expect to maintain. The
Governor's budgets appears to be $4.7 billion because they
do not retain the $1.2 billion needed per year to maintain
the balance in the Public Education Fund.
1:21:12 PM
Mr. Teal referenced the Public Education Sheet with the
legislative "intent". He reiterated that the FY 09 budget
started with $923 million. A supplemental appropriation was
not needed, as enough money was available in the Fund to pay
for education one year in advance. The Task Force fiscal
note fixed what would have been a small deficit. The FY 09
deposit to the Public Education Fund should be $1.1 billion,
according to the anticipated needs in FY 10. In FY 10, $1.2
billion would be put in the Fund for the anticipated need in
FY 11. He believed this was clear, simple and sustainable.
He pointed out that the Governor's plan was simple for three
years, but was not "clear" because it makes a $5.5 billion
budget appear to be a $4.7 billion budget and that it was
not sustainable. Mr. Teal maintained that there will be a
big hole to fill in FY 12 under the Governor's version,
unless future deposits are made
Mr. Teal observed that according to Karen Rehfeld, Director,
Office of Management and Budget, the Governor planned to
contribute more to the Public Education Fund to maintain the
balance of one year's funding, but Mr. Teal believed that
even by doing so the net draw from that savings account was
$1.6 billion. The $1.6 billion, not deposited into the
Education Fund, is money that can be spent somewhere else,
to achieve a lower total. According to Mr. Teal, this
reasoning reflects a $1.6 billion distortion. He did not
want his remarks to be viewed as an attack on the Governor's
budget and acknowledged that the budget was comprehensive
and provided a good framework for discussions. He believed
that the Governor and the Legislature share the same goals
of containing spending, saving for the future, and
maintaining transparency.
1:24:18 PM
Mr. Teal emphasized the "take away" point was that the
presentation of the budget is critical to understanding the
budget. The budget can not be measured if it can not be
defined; it can not be contained if it is impossible to
measure. He also maintained that it is impossible to measure
growth without a common starting point.
Mr. Teal referenced a statement made at a previous meeting
by Senator Hoffman that the "bottom line" is the same with
the Legislative Finance Fiscal Summary and the Governor's
Fiscal Summary. He pointed out that there are many common
points between the different viewpoints toward the budget.
He emphasized the need for a clean starting point to work
together.
1:25:48 PM
Mr. Teal addressed a point made in a previous meeting by
Representative Hawker regarding the definition of savings
and how they were shown.
Mr. Teal cautioned that there is danger in showing deposits
made to the Public Education Fund as "savings". Mr. Teal
gave the example that if you deposited one billion a year
into the Public Education Fund and classified it as
"savings", then at the end of three years, $3 billion would
be expected in this account. But, in actuality, there would
not be any money in the account because the money was pulled
as soon as it was deposited, even though every year it was
counted as "savings". He warned that legislators could
mislead themselves in thinking there was more money
available to spend than was actually available or that less
was being spent. This could cause a relaxed focus on
containing budget growth.
1:27:29 PM
Mr. Teal observed that in the previous meeting, there was a
consensus among committee members for a more transparent
budget. He emphasized that the present budget process puts
the Legislature at a distinct disadvantage in the public
relations perspective. This was due to the fact that if the
Legislature were to adjust the Governor's budget to reflect
the funding of the K-12 and retirement budgets as the
Legislature intended, without taking it from a "savings
account," the extra money would look like an addition. The
problem was that the Legislature would break the $4.7
billion target for FY 11 and the budget would contain no new
capital projects or services other than those the Governor
has in her budget. Although no more state funds were being
spent, the public will think the Legislature was spending
more. It would be difficult to fix the budget without the
Governor's cooperation in stating the budget the way the
Legislature prefers. The presentation would be affected by
the magnitude of the numbers.
1:29:25 PM
Mr. Teal went on to explain the second policy initiative
which was "savings". He believed it was important to save
now, while revenue was available. He stated that revenue
would likely decline and the budget would grow in the
future. He recommended a review of the State of Alaska
Fiscal Summary to see how much money was available and how
the Governor proposed to use it. He observed that FY 08
showed a surplus of $84 million. The revised revenue
forecast, which is up $3.2 billion, took into account the
$614 million Public Education Fund balance as available
spending. He reiterated the danger in counting Public
Education balances as money available to spend. The danger
is that the $84 million dollar surplus only occurs if the
$614 billion is spent. The $614 million was not spent.
Instead of a surplus there was actually $500 million deficit
at adjournment, which was reduced by high oil prices. An
addition $3.2 billion in revenues came in, leaving a $2.6
billion surplus, which is available to the Legislature. The
Governor has identified supplemental needs of $108 million
in operating and $34 million in capital. Mr. Teal observed
that there are classification differences. The Governor puts
retirement deposits as savings, but he would consider them
prepayment of a liability that the State had accepted
responsibility. There is also an energy endowment, which he
would consider a grant/loan program. There would still be
$2.3 billion to save if these are considered supplementals.
The Governor proposed putting $1.6 in the Public Education
Fund, $500 million into transportation endowment and the
rest into the Constitutional Budget Reserve Account (CBR).
1:32:54 PM
According to Mr. Teal, the FY 09 budget is a cleaner
presentation because it did not show the balance of the
Public Education Fund. This reflected true revenue coming
in the fiscal year. He believed the surplus to be the root
of the problem with transparency.
Mr. Teal talked about the "five-year plan", which was an
attempt to contain spending but noted accusations that it
gave the appearance money was just being shuffled around.
The original target of the five-year plan was to reduce the
budget by $250 million. Distortion was caused by conversion
of general funds into other funds in the Capitol Income
Fund.
Mr. Teal did not believe the problem was having a surplus,
but how it was treated.
1:36:07 PM
Representative Hawker noted that putting numbers on paper
often gave a false certainty; it developed an absolute
certainty to that number. Representative Hawker inquired
about probabilities and ranges of these numbers and where
those numbers would really be.
Mr. Teal said he could guarantee that the numbers were
wrong. There was a level of precision implied in the numbers
that just does not exit. He pointed out that every dollar
change in the price of oil affects the surplus by $100
million or more. The $2.6 billion dollar surplus in FY 08
was based on a price of $72 per barrel of oil. The average
year to date price was higher by $10 or more, which could
raise the $2.6 billion dollar surplus to $4 billion. Since
oil has remained at or above $90 per barrel it is more
likely the surplus will be $4 billion range.
Representative Hawker asked if a number could be put on FY
09, assuming oil prices stayed at the $90 per barrel range.
Mr. Teal projected that if oil remained at the $90 per
barrel range, with the projected lower volume of output, it
would provide slightly lower revenue and with expected
expenditures higher, there would be a slightly lower
surplus. The combination result would be about $500 million
to $600 million, providing a surplus of approximately $3
billion.
1:38:30 PM
Representative Gara requested a number projection if next
year's oil prices were at $70 per barrel range instead of
$90 per barrel range.
Mr. Teal responded that the projected price of oil for FY 09
was $66.32 per barrel. The extra $30 per barrel would
translated into $3 to $4 billion surplus if the price of oil
remained at $90 per barrel,.
Representative Gara asked for the projected surplus for FY
09.
Mr. Teal projected a surplus of $650 million at the $66.32
per barrel price.
Mr. Teal added that having a surplus was not the problem,
but how it was treated. He reminded the committee members
that it was impossible for him to reclassify funding to the
Governor's budget, but the Legislature could. However, doing
so might give the appearance to the general public of
spending more of the General Fund now and in the future.
Mr. Teal reminded members that the Governor had no intention
on hiding how she plans to hold the budget to $4.7 billion.
He believed the traditional budget presentation reflected
different times. In the past, revenue was irrelevant to
budgeting when the Legislature planned for the needs of
Alaskans. When funds were not available, money was drawn
from the Constitutional Budget Reserve. With no money to
save, budgets were simple. The first surplus appeared in FY
06, but the distortion problem was not recognized until FY
07. General opinion believed it would not last until FY 08,
so only now, in FY 09, is there recognition that a problem
exits that needs to be fixed.
1:42:36 PM
Mr. Teal concluded that to have a clear and simple budget,
changes are needed. A simple choice would be not spending
the money. Money not appropriated would automatically fall
into the CBR.
Not wanting to focus on the problems, Mr. Teal offered the
alternative of resurrecting and placing the surplus in the
Statutory Budget Reserve Fund with no earmarks or
designations. Although the general public might see this as
hiding money, in reality, it is just saving money.
1:44:25 PM
Senator Elton remarked that when the Governor's term ended,
the budget would rise by 15 to 20 percent. He wondered if
the Legislature would be blamed for the dramatic spike due
to spending down the Public Education Fund.
Mr. Teal remarked that the Governor presented a three-year
plan to the end of her term, not a long-term plan. He agreed
with Senator Elton that the budget increases by $1 to $1.2
billion at the end of the three years.
Mr. Teal continued talking about the Statutory Budget
Reserve as a "savings account." Money going into the reserve
would appear as a transfer, not an appropriation, so the
budget does not increase. Money coming out would appear as
general fund spending, without distortion, giving a clean,
clear budget. The creation of one reserve savings account,
showing a balance, would be easier to track. Money is being
saved if the balance is growing; the balance drops when
money from the account is spent, allowing the budget to be
measured. Mr. Teal stressed that a budget that can not be
measured, can not be contained.
1:47:02 PM
Mr. Teal observed more input was needed from the Finance
Committees on their recommendations. He understood the
Legislature, OMB, and the Finance Committees sought a common
starting point where all could agree on the budget in the
Fiscal Summary and on a savings agreement to prevent budget
distortion now or in the future.
1:48:18 PM
Co-Chair Hoffman agreed that everyone wanted a common
starting point. He pointed out the confusion of spending
money from a savings account while concurrently putting
money back into a savings account. These inconsistencies
barred a clear and transparent budgeting process. A
comprehensible budgeting process is vital for the general
public, not just to the Administration or Committees.
Representative Gara asked for clarification regarding the
surplus in various funds. Mr. Teal noted that the surplus in
the Public Education Fund is at $923 million; the
Constitutional Budget Reserve, $30.3 billion; the Alaska
Housing Finance Corporation, $300 million (deposit plus
interest); the Capital Income Fund, $280 million; and the
Power Cost Equalization Endowment, which is also a savings
account, at $200 million.
Representative Gara questioned the amount the Governor
planned to deposit and to withdraw from the Public Education
Fund.
1:51:49 PM
Mr. Teal responded that the Governor planned on placing $2.6
billion into the Fund while withdrawing a little over one
billion, leaving $1.6 million in the Public Education Fund.
Representative Gara asked about the Governor's proposal for
the CBR and the Permanent Fund. Mr. Teal said the Permanent
Fund would not affect general funds since it came from the
Earnings Reserve Account. Representative Gara questioned if
the Governor planned to transfer Earnings Reserve Account
money into the Permanent Fund, not surplus money. Mr. Teal
agreed.
Representative Gara requested the amount in the Earning
Reserve Account. Mr. Teal responded that $4.5 billion is in
the ERA. Representative Gara asked the amount the Governor
proposed to deposit into the CBR. Mr. Teal answered that the
Governor proposed a $223 million deposit into the CBR in FY
08 and $155 million in FY 09. Since these numbers were
designed to get a zero bottom line, if the revenue forecast
changed, the Governor's deposit to the CBR would be
modified.
1:53:35 PM
Co-Chair Chenault asked Mr. Teal for clarification regarding
the amount in the PCE Fund, which he believed was closer to
$400 million. Mr. Teal agreed that the amount was
approaching $400 million with last year's $200 million
deposit.
Representative Meyer wondered if the Governor's budget
proposed creating new transportation and energy funds. He
understood the Energy Fund had been established, but
contained no funds, making the Transportation Fund the only
real "new" fund. Mr. Teal believed that alternative energy
legislation was still before the Body.
Co-Chair Meyer wondered about the classification of the
Transportation and Energy Funds.
Mr. Teal answered that Representative Thomas would be the
appropriate person to ask but that he personally believed it
should be classified as "spending" since the Fund was a
source of grants and loans not like an endowment, where the
earnings are spent.
1:55:54 PM
Rep. Thomas answered that the legislation was still in
committee, but he believed the earnings would be spent each
year.
1:5606 PM
Co-Chair Meyer asked for a historical prospective on some of
the funds being mentioned. He questioned if Alaska
Industrial Development and Export Authority (AIDEA)
dividends, Alaska Housing dividends, and Student Loan
dividends were used in the capitol budget, not the operating
budget. He remarked that the fairly new Capital Income Fund,
originally designed to capture the Amerada Hess dividends of
$28 million, grew larger than anticipated. Money saved by
the Governor's vetoes moved into the Capitol Income Fund,
enlarging it even more.
Mr. Teal answered that historically the dividends have been
used many places. Before the five-year plan, prior to 1998,
dividends were classified as general funds. Corporate
dividends were classified as "other funds" as part of the
Five-Year Plan, to show a savings. The dividend reclassified
gave the appearance of a spending reduction. Dividends would
need to be used in the same budgets, capital or operating,
if they were going to be measured and tracked correctly. In
recent years, dividends have been used in the Capital Budget
and deposited into the Capital Income Fund. He agreed with
Co-Chair Meyer that the size of the Capital Income Fund was
never intended to be as large as it has become.
He agreed that there were inconsistencies in the Governor's
plan to remove money from one "savings account" and deposit
it into a different "savings account." One could infer that
the Governor did not like the Capital Income Fund for some
reason, but this obviously was not the case since she did
not spend the entire fund.
1:59:43 PM
Mr. Teal acknowledged that the Governor could say the $95
million in vetoes reduced spending, but maintained that she
could not claim to not reduced the budget. He explained that
the unspent capital fund money became part of the surplus.
The funds then became part of the Capital Income Fund, since
the Legislature had a provision in the budget, which
appropriated all FY 07 general fund surpluses into the
Capital Income Fund. The Governor's $95 million in vetoes
was added to the $155 million surplus and then the entire
$250 million fell into Capitol Income Fund.
Mr. Teal remarked that because [the transfer of the FY 07
surpluse to the Capital Income Fund] happened in FY 07, it
is "off the information page" and probably "out-of-mind." It
will not be seen again until FY 09 where it will be spent as
Capital Income Fund, not General Funds, making the budget
appear lower. In order to maintain the same level of
spending in FY 10, the Legislature will have to come up with
$150 million in general funds.
2:02:28 PM
Representative Hawker wanted to know if the cruise ship tax
initiative receipts [Commercial Passenger Vessel Tax]
collected now and again in FY 09, were accounted for in this
budget, and if so, how.
Mr. Teal explained that the $4 head or berth fee [from the
$46 per head], generates about $2.3 million to environmental
conservation where the entire anticipated revenue was being
allocated to the Ocean Ranger Program.
Representative Hawker inquired about the placement of the
additional monies [$42 per head], which would be collected.
Mr. Teal noted that the rest of the money would be placed
into the General Fund, some of which would be distributed
back to communities. Representative Hawker questioned if the
redistribution money was listed in this budget since there
were significant federal restrictions on how the cruise ship
head tax money can be spent.
2:04:57 PM
Mr. Teal agreed in the challenges of placing all funds into
the General Fund. "Restricted" funds are bound to a precise
use, while "unrestricted" are not. However, there are some
who may want to assign a specific use to money from an
"unrestricted" fund, for example those that wanted the
monies from the Vehicle Rental Tax Income to be used only
for tourism development.
Representative Hawker drew significant distinction between
the income from the Vehicle Rental Tax Income and Commercial
Passenger Vessel Tax. The money from the Vehicle Rental Tax
Income, with no restrictions, could be designated for
anything, but the Alaska state governing powers could not
override a Federal government regulation on the use of the
Commercial Passenger Vessel Tax money.
2:07:11 PM
Representative Hawker asked once more if this large amount
of "restricted" money collected was shown in the budget as
general fund revenues. He wondered if the unspent
"restricted" money would fall into the CBR.
Mr. Teal noted it was hard to define general fund revenue,
which was usually referred to as "unrestricted general fund
revenue." A possibility would be to create a new "general
restricted fund" category, but leaving it as "other" funds
in the General Fund worked equally as well.
2:08:55 PM
Representative Kelly agreed that budgets can be a "little
too creative." His concern was not how the Governor created
the budget but where the actual "spent" and "surplus" money
is reflected in the budget. His main desire was for a more
straight forward budgeting process.
2:11:43 PM
Senator Huggins agreed with Representative Kelly in that he
wanted to see this budget as clear and honest, without
distortion, for the general public.
ADJOURNMENT
The meeting was adjourned at 2:12 PM
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