Legislature(2009 - 2010)HOUSE FINANCE 519
02/19/2009 01:30 PM House FINANCE
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| Governor’s Fy10 Operating Budget Amendments | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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HOUSE FINANCE COMMITTEE
February 19, 2009
1:39 p.m.
1:39:09 PM
CALL TO ORDER
Co-Chair Hawker called the House Finance Committee meeting
to order at 1:39 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Vice-Chair
Representative Allan Austerman
Representative Harry Crawford
Representative Richard Foster
Representative Les Gara
Representative Reggie Joule
Representative Mike Kelly
Representative Woodie Salmon
MEMBERS ABSENT
Representative Anna Fairclough
ALSO PRESENT
Karen Rehfeld, Director, Office of Management and Budget,
Office of the Governor; Pat Galvin, Commissioner, Department
of Revenue
PRESENT VIA TELECONFERENCE
None
SUMMARY
1:39:15 PM
^GOVERNOR'S FY10 OPERATING BUDGET AMENDMENTS
1:42:12 PM
KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR indicated that Commissioner Galvin
would introduce the interim revenue forecast numbers to
preface the discussion of the proposed budget amendments.
PAT GALVIN, COMMISSIONER, DEPARTMENT OF REVENUE presented an
overview of the interim revue forecast for FY10. The
commissioner signified that the oil price per barrel has
been revisited as it is now significantly lower than
projected in November/December 2008. He indicated that from
July 2009 until July 2010, the average North Slope price for
oil is being projected at $57.87. The production volumes are
estimated at 659,000 barrels per day, a decrease of 6,000
barrels from the fall forecast. The projected unrestricted
revenue for FY10 is just under $3.2 billion, a $2.1 billion
decrease from the fall forecast. Commissioner Galvin
declared one positive is that oil revenue is now 82 percent
of unrestricted revenue down from the low 90 percent a year
ago.
1:45:07 PM
Co-Chair Hawker appreciated the follow-up from the fall
forecast due to last year's volatile price fluctuation in
the oil market. He referred to the present period of
relative stasis in oil market pricing and asked the
commissioner what sense of confidence the department had in
the present projections.
1:46:19 PM
Commissioner Galvin responded that previously the department
depended heavily on the modified Delphi forecasting system,
but projections have been updated blending with other
publically available resources to provide a timelier
forecast. Confidence in oil price expectations is directly
related to overall feelings regarding the U.S. and global
economy. He stressed that expectations cross a wide spectrum
in terms of what is being seen in the near and longer term
for the global economy and, by reflection, oil prices. The
commissioner agreed that the past 2 months have been
relatively stable compared to the prior 6 months, but
stressed the complicated nature of projecting an average
price while trying to predict the oil price progress over
the next few years. More will be known during the next two
months due to the introduction of the stimulus package
together with other big ticket items influencing global
markets over the next 18 months. The commissioner admitted
that the unknowns created less optimism today than several
months ago.
1:50:00 PM
Co-Chair Hawker pointed out that during the relative stasis
of the past 60 days, an anomalistic circumstance developed
where Alaska North Slope crude, typically trading on the
west coast at a several dollar discount to the benchmark
West Texas Intermediate or Texas Light Sweet has reversed
and now West Texas Intermediate is selling at a substantial
discount to Alaska North Slope crude. He wondered if this
was a long term trend and if it affected the budget
analysis.
1:51:05 PM
Commissioner Galvin responded that Alaska historically sold
oil at a long-term $2.50 discount on the west coast, but
during the fall there was a deep $6 discount over a long
period. The commissioner explained that when the market is
in stress buyers turn to the preferred quality of the Light
Sweet product. Alaska crude sells in large quantity lump
sales, so the question to determine is if this is a long
term phenomena or a quirk in the market; the trend has not
sustained long enough to establish its course. Commissioner
Galvin indicated that the $2.50 discount is still being
projected, but there is an overall pessimistic feeling as
the department monitors the trend leading to the spring
forecast.
1:53:04 PM
Representative Crawford asked if the FY10 figures take into
account the loss of the standard deduction and, if so, what
is the projected loss.
1:53:24 PM
Commissioner Galvin responded that the standard deduction
has been built in, but specific numbers will need to
confirmed at a later date.
1:54:22 PM
Commissioner Galvin informed the committee of a recommended
change in the approach to the budget relating to the oil tax
credits. Tax credits are accruing for any company investing
in exploration and development, but companies with existing
production will have a tax obligation deducted off the top.
The commissioner reported that the credit, showing up in the
budget as an appropriation amount, is strictly the
anticipated amount owed to companies that do not have
sufficient or any production to establish an obligation to
the state. He impressed upon the committee that a factor in
the projections is having credits available when they are
due, so companies will not worry about payment being subject
to subsequent appropriation. He noted a range of obligations
on the high end has been built in to keep the money flow so
no one will be turned away in down times. This has resulted
in the department continually adjusting downward over time
as better information is received. Commissioner Galvin
suggested an alternative course is to change the language of
the authorization to have the amount necessary to pay the
tax credits and then DOR would provide the estimate to be
built into the budget. He declared this would secure that
payments are made, but retain the obligation to return to
the legislature with the actual numbers. The commissioner
believed this to be a better balance in experience where a
more accurate prediction can be made without being under,
resulting lower cash flow.
Co-Chair Hawker remarked that the commissioner was looking
to change the language from a limited appropriation to an
open-ended appropriation, but still require a report back to
the legislature. Commissioner Galvin agreed and stressed it
would only be open-ended for the tax credits established in
law. Co-Chair Hawker asked Ms. Rehfeld if there was a
precedent for this open-ended appropriation.
1:58:23 PM
Commissioner Galvin responded that the resource rebate last
year was written in this manner. Co-Chair Hawker questioned
if an open-ended appropriation rescinded the legislature's
finite responsibility to appropriate. Commissioner Galvin
responded that when the resource rebate decision was made,
it was assessed as not being open-ended if it was for a
defined purpose.
1:59:49 PM
Ms. Rehfeld interjected that another precedent for the open-
ended appropriation had been in judgments and claims within
the Department of Law.
2:00:25 PM
Representative Crawford questioned the difference in the
credit allowing for $200 million instead of $300 million. He
recalled testimony during the Alaska's Clear and Equitable
Share (ACES) debate indicating that price per barrel would
be the greatest predictor as to future activity. He asked if
the drop in price caused the reworking of the money held out
for the credit or if they were unable to anticipate the
amount of needed exploration and development credits.
2:01:51 PM
Ms. Rehfeld remarked that the budgeting discussion has been
on timing and tax credit amounts. She explained that because
it is a new program, the revenue projected in the end
process is eligible for the tax credit, but found the time
to process and audit the applications was slower than
originally anticipated. In last year's budget, the
authorized amount was increased to $400 million as the
application process was expected to turn around faster, but
given recent timing, the DOR took it back down in the
supplemental bill to $200 million. In the FY10 budget, the
department left the credit at $300 million because of the
capped nature of the appropriation to give companies more
flexibility but it was decided to reduce it back to $200
million in the current year with a change in the language.
She reported that a great deal of exploration is going on in
the state that has not been impacted from the drop in oil
prices, but she reiterated that from the budget side it
appears to be more of a timing consideration. Ms. Rehfeld
concluded that this is a new program and if the legislature
is amenable to restructuring the appropriation DOR will be
able to make better determinations after the upcoming third
year.
2:04:11 PM
Co-Chair Hawker indicated that the committee had requested a
more complete analysis of the credit calculation projections
instead of just moving money around for budgetary purposes.
Ms. Rehfeld responded that revenue is working to provide
that information.
2:05:26 PM
Ms. Rehfeld emphasized that over the past few months the
Office of the Governor has been struggling with the
projected revenue forecast to determine the necessary budget
adjustments. She stressed the administration's concern to
manage during the downturn and extend the life of the
savings account. There are some proposed reductions in the
supplemental bill that in the current year's appropriations
minimize a draw on the reserves. In FY09 there is a proposed
$1.36 billion draw at the end of the fiscal year added to
$1.25 billion for the proposed amendments resulting in a
total $2.6 billion draw on reserves. The question is what
can be reasonably reduced while still providing needed
services and minimizing the draw from reserves.
2:07:58 PM
Ms. Rehfeld referred to the State of Alaska, Fiscal Year
2010 Governor's Amended Fiscal Summary (copy on file). She
remarked that the December budget is compared with the newly
released Governor's amended budget. The change in the
revenue forecast with the adjusted price of oil at $57.78
reflects a drop in revenue of $2.1 billion (line 3). The
total revenue picture for FY10 is $3.2 billion. The proposed
amendments, in the general fund column, would reduce
December's spending plan by $445 million. At the end of FY10
this would be a proposed projected draw on reserves of $1.25
billion.
Ms. Rehfeld highlighted some items on the fiscal summary.
She pointed out the reduction in the direct deposit to the
retirement systems (line 15). The original figure reflected
the anticipated amount to prepay down on the unfunded
liability. She emphasized this will not impact the employer
rate; the state is still committed to pay the PER/TRS
obligation. Ms. Rehfeld commented that due to the revenue
shortfall it was not believed appropriate to fund any
additional payments into the unfunded liability.
Co-Chair Hawker contended that some media outlets were
reporting that the state was going to short fund the pension
obligations in the retirement program. He wanted it clearly
understood that the state was living up to its actuarial
obligations and not short funding the retirement program.
2:11:54 PM
Ms. Rehfeld agreed there had been confusion but emphasized
that the state is committed to pay the statutory determined
rates for PERS/TRS but due to the $2 billion revenue
shortfall there will be no hoped-for additional prepayment
of the unfunded liability.
2:12:26 PM
Representative Gara noted that more money has been put into
the retirement obligations than required but asked for
clarification on how the required minimum amount is
calculated. Ms. Rehfeld replied that the Alaska Retirement
Management Board (ARMB), with an actuary, determines the
rate for PERS/TRS and the state, and under SB 125, is
committed to pay the difference between the 22 percent and
the actuarial defined rate. Co-Chair Hawker interjected that
the state is fully funding the retirement obligation to the
rate determined by the actuaries. Representative Gara asked
if the amount shown in the fiscal summary sheet reflects the
amount recommended by the ARMB. Ms. Rehfeld agreed it
reflects the required payment rate.
2:14:10 PM
Representative Gara analyzed that the projected debt to
fully fund the system goes up when stock market goes down,
therefore if less is being put into the short fund, the debt
is now bigger. Ms. Rehfeld agreed that the numbers are
adjusted annually. The amount should be adjusted to show the
decline in the market when the ARMB meets again to project
the unfunded liability. She indicated several options
available to pursue paying down the unfunded liability such
as adding additional cash or issuing pension obligation
bonds.
2:16:00 PM
Ms. Rehfeld continued with the federal reimbursement
adjustment to Medicaid under the stimulus package (line 11).
The federal money increases 6.2 percent over 9 quarters,
starting this year and extending into FY11. Ms. Rehfeld
emphasized that the federal government is very specific that
the states not reduce services due to revenue shortfall but
maintain payment on existing programs. Co-Chair Hawker
remarked that both the administration and the legislature
want to keep the economic stimulus activities separate from
the operating budget but in this case it merits inclusion
into the operating budget. He asked if this is the only
component of the economic stimulus package that has been
incorporated into the operating budget.
Ms. Rehfeld replied that is the only component at this time.
She emphasized that the stimulus bill is very large document
targeting many programs therefore it takes time to
understand the requirements, impacts, and changes to
existing programs. The stimulus bill will also affect
capital and operating funds and how those funds flow to the
state. Co-Chair Hawker requested that the stimulus package
be kept separate from the budgeting process.
2:20:00 PM
Ms. Rehfeld signified that as components are pulled out of
the federal bill they will be brought before the
legislature. She spoke of the $100 million in tax credits
mentioned earlier by Commission Galvin and the decision to
back out the placeholders for future supplementals and
amendments. Co-Chair Hawker clarified that these are not
items in any budget simply notational entries on the summary
documents, not reductions in any previously budgeted item.
Ms. Rehfeld explained that these are components of the
overall spending plan which are being reduced because of the
$2 billion shortfall. She indicated that no other spending
will be brought to the legislature for consideration. She
noted one of major changes made on the capital side was the
reduction in the renewable energy fund grants from $50
million to $25 million. Ms. Rehfeld indicated the $238
million proposed spending out of Alaska housing capital
corporation fund had been reduced to $128 million.
2:23:29 PM
Representative Gara asked about the $709 million and $711
million in Duplicated Authorizations (line 13). Ms. Rehfeld
defined duplicate authorization as a technical term where
something appears in two places in the budget but it is not
counted twice in the spending plan. Representative Gara
asked for the amount of extra Medicaid (FMAP) money the
state is expected to receive. Ms. Rehfeld indicated that the
federal authorization replaces Medicaid in the general fund,
not reducing state dollars (line 11). Co-Chair Hawker
interjected that the stimulus adjustment is restoring the
enhanced FMAP rate enjoyed in the state for many years
before the federal government removed it last year.
2:25:35 PM
Ms. Rehfeld moved to the Governor's FY2010 Operating Budget
Amendments (copy on file). She indicated adjustments to
several departments of varying sizes. There is a $1 million
proposed increase for the Public Defender Agency due to a
projected increased case load (page 1, line 3). There are
few changes in the Department of Commerce; mot dealing with
cost allocation plans within the department. She moved to
the Department of Corrections adjustment for the Goose Creek
Correction Center that proposed the hiring of a private
contractor for the construction of the prison. The receipts
would come from the Mat-Su Borough (page 2, line 19).
2:28:14 PM
Representative Salmon asked Co-Chair Hawker if the affected
departments will be coming before the committee. Co-Chair
Hawker responded that Ms. Rehfeld will be available to the
departments and each amendment will be sent to individual
subcommittees for a detailed review.
2:29:13 PM
Ms. Rehfeld moved to three increase requests for the
Department of Fish and Game: the proposed increase in the
Lower Yukon River salmon fisheries, the Bering Sea Crab
research program, and the wildlife pilot program of urban
response teams. The Bering Sea Crab research program has
federal funds attached to it under the federal stimulus
package which would replace the general fund request. In the
wildlife program, there was a proposed movement of $190,000
from the FY10 capital budget into the operating budget to
address some of these issues.
Representative Gara requested more information on the
Wildlife Conservation pilot program of urban response teams.
Ms. Rehfeld responded that the specifics were to try and
address brown bear situations in urban areas. This request
has been reduced from $750,000 to $190,000.
2:32:16 PM
Representative Kelly expressed his hope that the Department
of Fish and Game would not hire more government employees
for this program. Ms. Rehfeld responded that Representative
Kelly should contact the department directly concerning
their plans. Ms. Rehfeld moved to the $1 million for
reduction of fuel allocation from the executive branch
agencies (page 2, line 33). Most of the affected changes in
Health and Social Services (HSS) involved the $74 million in
federal money for Medicaid (page 2-4, line 34-63). Ms.
Rehfeld referred to a recent determination of error in the
billing methodology related to nursing (line 52). She added
that some transactions throughout the budget were specific
to the Mental Health Trust.
2:35:21 PM
Representative Gara asked if all the HSS line items add up
to $74 million. Ms. Rehfeld agreed, with a few exceptions.
Representative Gara asked if there was any consideration
given to use some of the saved state money being replaced by
the federal stimulus money to assist in foster care issues.
Ms. Rehfeld responded that there were some budget increases
in a few areas in the FY10 budget but no plans to revisit
and further increase any of them at this time.
Representative Gara revealed that for a very small amount of
money foster children could be helped with transitional
housing. Ms. Rehfeld responded that the federal law is clear
about not taking federal money just to save state money; the
state must continue programs and not reduce services.
Representative Gara alleged that if the state was saving
money then some of that money could be spent to resolve
existing problems.
2:38:27 PM
Ms. Rehfeld continued with the Department of Labor (page 4,
line 65-68). She referred to unemployment insurance and
asserted this was not related to the federal stimulus bill
(line 67). Co-Chair Hawker reiterated this was not part of
the federal stimulus package but in the ordinary operations
of the federal appropriation process. Ms. Rehfeld
highlighted several areas of increase for the Department of
Law (page 4-5, lines 69-75). The department was asking for
$1.9 million for the Trans Alaska Pipeline (TAPS) Strategic
Reconfiguration (line 73), $600,000 for Endangered Species
Act litigation, and $3.5 million for the BP Corrosion Issue
(line 74, 75).
Co-Chair Hawker asked if the BP corrosion litigation funding
in the original budget was pushed as a reduction item but
now is being restored. Ms. Rehfeld responded that BP had
originally been put forth as a lapse extension, but the
committee had requested it be considered in the FY10 budget
as an amendment.
2:41:36 PM
Ms. Rehfeld moved on to the Department of Public Safety
(page 5-10, lines 82-109). She indicated the $8.5 million
request included state troopers, wildlife troopers, and the
implementation of the Phase 2 of the Village Public Safety
Officer (VPSO) study. She noted that recruitment efforts
have been successful and the money would fund the existing
15 positions. Vice-Chair Thomas announced that the VPSOs are
not licensed to carry weapons.
2:43:58 PM
Ms. Rehfeld announced a few safety related and maintenance
items in the Department of Transportation (page 6-8, lines
115-124). The largest increase was $2.3 million for the FY10
Bargaining Unit Contract terms of the Inland boatmen's Union
of the Pacific (line 124). There are shifting funds for the
University capital budget request into the operating budget
(page 8-9, lines 125-134). Ms. Rehfeld reviewed the debt
reimbursement and debt retirement for a school in Cordova
and some adjustments for some issued bonds (page 9, lines
140-142).
2:45:41 PM
Ms. Rehfeld reported power cost adjustments were due to an
expected decrease in interest revenue in the PCE Fund which
required additional general funds to fully fund the program
(line 143). She moved to the Fund Capitalization for tax
credits and the reductions in the PERS/TRS contributions
(page 10, lines 145-146). The Spring Creek Expansion Line
reflects a reduction as it has not proceeded as expected and
there is also a reduction on the Bethel project (line 153,
155).
Co-Chair Hawker asked about the proposed language addition
to the CBR to balance the FY10 budget (page 10, line 158).
He felt the FY10 budget would fall under the sub section B
exemption clause for accessing the CBR and questioned if
this had been determined differently. Ms. Rehfeld responded
the department is presently looking at calculating that
information.
Representative Salmon referred to line 20 and remarked that
the focus should be on more edible fish. Co-Chair Hawker
suggested that Ms. Rehfeld have someone from the Department
of Fish and Game contact Representative Salmon.
Representative Crawford questioned if the Bethel Prison
project appropriation was on hold or cancelled.
2:49:29 PM
Ms. Rehfeld indicated that the financing mechanism under SB
65 made it impossible to finance a project based on the
limitations in this bill. There was uncertainty if the
people of Bethel wanted a prison expansion, but the new city
council indicated a desire to move forward. The Department
of Corrections is working with them to define the project.
Representative Crawford noted that the administration had
made a great case on why the expansion in Bethel made good
investment sense. Ms. Rehfeld indicated the project may not
go away but was just not fully defined yet.
2:51:30 PM
Representative Austerman referred to the stimulus package
regarding Medicaid and wondered what would happen in the
FY11 budget when there was no longer $74 million from the
stimulus bill. Ms. Rehfeld noted that the federal funds
would be available through part of FY11 but then the state
would have to replace general funds after that time.
Representative Austerman commented that he was nervous
watching the state's savings account disappear as the state
tries to balance the budget over the next few years.
2:53:39 PM
Co-Chair Hawker observed a similar situation in federal
funding of the Federal Medical Assistance Percentage (FMAP)
rate that established an entitlement program that in the
past few years the state had to fund. He expressed his
concern about creating new programs under the federal
stimulus bill that the state will have to pay for later.
2:56:12 PM
Representative Kelly remarked that the governor talked about
the difficultly and the trap in accepting stimulus funds
that will grow the operating budget in the future. He
requested that each time the federal stimulus package
offends the governor's or a legislator's sensibility that a
complete explanation and justification be given when
stimulus money is used to start new programs. Co-Chair
Hawker shared Representative Kelly concerns.
2:58:20 PM
Representative Gara remarked that much of the stimulus funds
provide for renewable energy, construction, and teachers. He
expressed interest in discovering what programs in the bill
increase services requiring state funds in the future.
3:00:02 PM
Ms. Rehfeld remarked that the administration is gathering
that information now. She hoped to have a preliminary
summary of the allocations for the legislature soon. Each
item in the stimulus bill will have its own requirements.
Representative Gara expressed his concern that the state
will receive the money, but not scrutinize it thoroughly. He
requested the committee listen to as many different
proposals as possible in order to select the best projects.
ADJOURNMENT
The meeting was adjourned at 3:03 PM
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