Legislature(2011 - 2012)HOUSE FINANCE 519
01/31/2011 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Budget Overview: Department of Corrections | |
| Budget Overview: Department of Revenue | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
January 31, 2011
1:32 p.m.
1:32:29 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:32 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Reggie Joule
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Joseph Schmidt, Commissioner, Department of Corrections;
Sam Edwards, Deputy Commissioner, Department of
Corrections; Leslie Houston, Director, Division of
Administrative Services, Department of Corrections; Bryan
Butcher, Commissioner, Department of Revenue; Ginger
Blaisdell, Director, Administrative Services Division,
Department of Revenue; Jerry Burnett, Deputy Commissioner,
Department of Revenue.
PRESENT VIA TELECONFERENCE
Bruce Tangeman, Deputy Commissioner, Tax Division,
Department of Revenue.
SUMMARY
Budget Overviews:
Department of Corrections
Department of Revenue
1:33:36 PM
^BUDGET OVERVIEW: DEPARTMENT OF CORRECTIONS
JOSEPH SCHMIDT, COMMISSIONER, DEPARTMENT OF CORRECTIONS
(DOC), introduced department staff. He provided a
PowerPoint presentation titled "Department of Corrections
House Finance Committee Overview." He highlighted the
department's mission statement (slide 2):
The Alaska Department of Corrections enhances the
safety of our communities. We provide secure
confinement, reformative programs, and a process of
supervised community reintegration.
Commissioner Schmidt relayed that the prior mission
statement had been to "incarcerate and supervise
offenders." The mission statement had been modified given
that the department wanted to offer a wider range of
services. He discussed that the system had experienced
growth and DOC wanted to provide other services outside of
secure confinement, which was expensive and would lead to
the construction of additional prisons. He opined that the
crowded prison system was a symptom and not a sickness. He
expounded that recidivism was the sickness the department
was working to reduce. The department was able to handle
new offenders; however, repeat offenders represented a
heavy burden.
Commissioner Schmidt discussed the department goals on
slide 3. Goals included the protection of the public, the
reduction of recidivism, a delay of the need for new
sentenced prison beds, and to ensure that an offender's
incarceration was productive. He expressed that the
department should work to make itself smaller. He relayed
that 297 felons were released from prison into Alaskan
communities per month; therefore, it was important to work
with prisoners during their incarceration.
Commissioner Schmidt discussed the make-up of the
department (slide 4):
· 1,500 Staff
· 12 Facilities in Alaska (with another under
construction)
o One of six states operating both pretrial &
sentenced facilities
· Out of state contract of 1,000 beds in Hudson,
Colorado
· 13 probation field offices
· 15 contract jails
· 789 community residential center beds
· 290 electronic monitoring placements
· 5,900 prisoners in facilities
· 6,000 offenders on supervision
· 38,000 bookings per year (22,000 individuals)
· 1 in 36 Alaskan adults are under our supervision
Commissioner Schmidt added that four years earlier DOC had
1,050 out-of-state prisoners in Arizona. The department had
reorganized, switched to a Colorado facility, and the
number had dropped to 1,000. He relayed that DOC planned to
bring all out-of-state prisoners back to Alaska once the
Goose Creek Correctional Center opened. He added that DOC
had never used electronic monitoring to address
overcrowding, but utilized the method when a prisoner was
reentering the community. He explained that 95 percent of
electronic monitoring cases were successful and that the 5
percent failure rate did not reflect the perpetration of
new crimes. The program had been very successful, but DOC
did not want to push community programs to the point of
failure.
1:39:56 PM
SAM EDWARDS, DEPUTY COMMISSIONER, DEPARTMENT OF
CORRECTIONS, highlighted the three divisions of the
department (slides 5 through 7). The Division of
Administrative Services included budget, finance, internal
audit, procurement, information technology, research and
records, facilities maintenance, and prison planning units.
The small division was directed by Leslie Houston and
offered critical functions. The Division of Institutions
was the largest and included all in-state prisons, prisoner
transportation, classification and furlough, and out-of-
state prisons. The division was directed by Garland
Armstrong, represented the largest portion of the DOC
budget, and provided the 24-hour secure confinement
functions. He discussed that building additional prison
beds was very expensive and time consuming; therefore, DOC
worked hard to utilize existing beds and to keep the
recidivism rate down.
Mr. Edwards relayed that there were as many supervised
individuals through the Division of Probation and Parole as
there were in secure institutions. Approximately 15 percent
of the department staff was dedicated to dealing with
felons out in the communities. He stressed that the
division staff were the first line of defense. The division
was directed by Donna White and had 13 probation offices
and 15 community jails statewide.
1:44:06 PM
Mr. Edwards continued to discuss the Division of Probation
and Parole (slide 7). Electronic monitoring and Community
Residential Centers (CRC) had been placed under the
division, given that the primary function of the division
was to supervise people in the community.
Co-Chair Stoltze asked about the success rate of probation.
He believed there was a high prevalence of parole
violations.
Commissioner Schmidt replied that DOC would provide the
committee with success statistics. He detailed that DOC put
approximately 200 people back in jail on a monthly basis;
of the 200 people, approximately 100 were jailed due to new
charges and 100 were jailed due to technical violations.
Representative Joule queried the demographics related to
parole violations. He noted that a prisoner was released at
their place of residence unless they had not gone through
the appropriate treatment program (e.g. sex offender or
anger management) due to the lack of availability. He
wondered about the prevalence of violations that occurred
when prisoners were released in a place that was not their
home.
Commissioner Schmidt responded that the issue was a
significant problem. He discussed that due to the lack of
treatment programs in some rural areas, prisoners from
those areas were required to remain in cities until they
went through treatment (many times individuals were on
treatment program waiting lists). He believed that moving
the resource out was the right thing. He elaborated that
the original Goose Creek Correctional Center plan had been
downsized in order to move resources to rural areas as
well. He discussed that rural communities had a low number
of active warrants and that urban centers had a higher
percentage of people in jail. He relayed that the
department could provide additional detail at a later time.
1:50:00 PM
Representative Gara wondered whether other states offered
transitional programs for individuals released from prison
that helped to decrease the recidivism rate. He was not
surprised to hear the recidivism rate was a problem when
individuals were released into a community where they had
no home or resources.
Commissioner Schmidt responded that Texas had done a
significant amount of work in the area; specifically on a
cost-effective justice model. The department had
implemented the Probation Accountability with Certain
Enforcement (PACE) program modeled after a Hawaii program
that helped individuals while they were under supervision
after release from prison. A task-force had been working on
a five-year strategic reentry plan that would be published
in February 2011. He added that an individual's success
also depended on their own desire to succeed. He emphasized
the importance of engaging communities in planning for
reentry.
Representative Gara wondered whether there was a plan that
would be implemented.
Commissioner Schmidt responded in the affirmative. He
furthered that the plan would provide an assessment of the
current issues and recommended strategies that included
programs offered in other states.
Representative Gara asked about the availability of
treatment services for individuals released from prison who
had substance abuse problems. He had heard mixed reviews
about programs that were offered in prisons.
1:54:23 PM
Commissioner Schmidt responded that the reentry plan would
focus on after care, follow up, and wrap-around services.
He discussed that assessments were conducted in pretrial
facilities to educate individuals on available services
based on their needs. He noted that DOC had a document that
listed all of its programs and the status of each and
emphasized that the department welcomed any criticism and
ideas for improvement.
Representative Neuman wondered why the prison employment
program had been discontinued. He asked what it would take
to restart the program. He stressed the importance of
teaching vocational skills to prisoners for reentry into
society. He had heard the program had been eliminated
because it had not made money; however, he did not believe
anything in the corrections sector made money. He opined
that inactivity was not good for the inmates or
correctional officers.
Commissioner Schmidt agreed that the discontinuation of the
Prison Employment Program (PEP) was unfortunate. When the
program had sunset several years earlier there had been
intent language stating that the program should be self-
sustaining. The program had been located in Juneau, Eagle
River, and Seward; two of the three had been losing money;
however, the Juneau laundry had made enough to cover them.
At a later time the Juneau laundry segment was no longer
able to sustain all three parts; therefore, the decision
had been made to discontinue the program. The Juneau
laundry program had received money in the budget and was
currently in operation again. He had been supportive of the
program and was interested in discussing how to reopen it.
Representative Neuman opined that the best way to reduce
recidivism was to provide prisoners with skill sets, which
would allow them to earn a living upon their release.
Co-Chair Stoltze discussed historical victims' rights and
criminal administration legislation. He wondered about
DOC's success in implementing its responsibilities under
Article 1 of the Alaska statutes.
Commissioner Schmidt responded that the principals in
Article 1 were part of the department's mission statement
and were taken very seriously. He believed victims' rights
were core guiding principles and told a related story.
Co-Chair Stoltze believed that in many cases the treatment
of the offender was not relevant in respect to the rights
of a victim (e.g. in cases related to sexual abuse or
other).
Commissioner Schmidt agreed. He discussed the importance of
assessment related to recidivism reduction. He explained
that one-third of prisoners would reoffend again regardless
of treatment; another third would not reoffend and did not
need treatment. The remaining one-third represented the
group in the middle that would respond to treatment. He
discussed that treatment providers did not cure sex
offenders, but managed them and provided protection to the
public. He noted that in addition to working to reduce
recidivism, the department's focus on secure confinement
was also imperative.
Co-Chair Stoltze discussed that some behavior was not
correctable and that severe offenders would "have to answer
for it elsewhere." He appreciated the commissioner's values
towards criminal victims' rights. He added that the
department's VINE [Victim Information and Notification
Everyday] program helped to improve information available
to victims' families and other. He referred to the
importance of constitutional rights for victims and the
accused.
2:04:58 PM
Commissioner Schmidt agreed and added that funding to
reduce recidivism was always used for that specific reason.
He emphasized that mistakes or re-offenses could happen,
but the department was centrist in its focus and would not
betray its stated goal and purpose.
Representative Edgmon discussed that Texas had spent a
significant amount of money on prevention and protection
related to recidivism. He wondered whether a similar
program would be applicable in Alaska.
Commissioner Schmidt responded in the affirmative. He
discussed that it was challenging to compare Alaska's
system with the one in Texas given that Alaska had a
smaller number of prisoners and a smaller budget. He
explained that the cost-effective justice model in Texas
had substantially reduced costs. He furthered that the
department's current probation program had been modeled
after a program in Hawaii and was experiencing the same
results. He believed the Texas program would work as well;
however, there were differences due to the scale of
services and other services that Alaska would utilize. He
discussed other ancillary costs related to victims,
medical, counseling, court, and other.
2:08:32 PM
Vice-Chair Fairclough asked whether victims' service
agencies had reviewed the curriculum in the sex offender
management program. She cited concern that a sex offender
could learn how to "game the system." She opined that
victims' services could provide a different and helpful
viewpoint related to the curriculum.
Commissioner Schmidt supported the idea. He believed that
the department should work with victims' agencies if it was
not currently doing so.
Vice-Chair Fairclough discussed that the Alaska Network on
Domestic Violence and Sexual Assault and other agencies
could provide suggestions related to the justice program.
She referred to concerns that efforts to rehabilitate
offenders could be used as a diversionary tactic to help an
offender go unnoticed in the future.
Mr. Edwards explained that CRCs acted as pre-release
centers for prisoners to help transition them into a
community when they were without a place to live, a job,
and community support. He relayed that the department
focused on providing vocational skills for inmates, which
was one of the core tenets (along with basic education) to
preparing a person for success upon release into a
community. Substance abuse treatment was available in
almost every DOC facility; some facilities were only able
to provide a short-term version of the treatment program
because DOC was largely a pretrial department. He noted
that the department worked to provide services offered in
larger systems to reduce recidivism and focused on
education, vocational skills, treatment, jobs, community
support, and places to live.
Mr. Edwards pointed to "Population Management Strategy" on
slides 9 and 10. The strategy had been implemented four
years earlier and focused on how to prepare a person for
transition back into the community. He noted that a large
portion of the success was related to a prisoner's safety
during their jail time. The department assessed the risk
level for each prisoner and worked to house similar
prisoners together in order to increase the safety level of
each individual; there were three custody levels. He
addressed that electronic monitoring and CRCs allowed
individuals who had demonstrated a low risk to establish
housing, jobs, and community support. Population management
helped to free up beds in jails and prisons, which was
critical due to a lack of space. He relayed that the use of
half-way houses had increased by 15 percent since 2008 and
electronic monitoring had increased 77 percent; both
strategies were important in the transition of individuals
safely back into communities. He elaborated that the
department was near its goal of 300 individuals on
electronic monitoring and was proud of the program's
success.
2:17:53 PM
Representative Joule wondered whether electronic monitoring
was an option available to all parts of the state.
Mr. Edwards answered that traditionally electronic
monitoring had only been available in hub locations;
however, as technology improved it was expanding into
outlying areas. He expounded that Barrow was interested in
the program and that it had recently been implemented in
Sitka and Juneau. He added that as the distance increased
from cities so did the difficulty of home visits.
Commissioner Schmidt discussed "Program Strategy" on slide
11. He discussed the long-term substance abuse treatment
program and the need for a statewide treatment program
plan. He talked about the placement of prisoners and
whether they were in appropriate locations. He relayed that
Alaska was a unified state and the department supervised
both misdemeanants and felons. The average sentence length
in the system was 160 days; therefore, a one-year program
with one-year waiting list did not work for the prison
population. He explained that the long-term program had
been converted into two programs to provide access to more
prisoners and additional three-month to four-month programs
had been created. The program focused on substance abuse,
anger management, criminal thinking, parenting, education,
and vocational training. A brochure outlining the program
would be available to committee members.
Commissioner Schmidt addressed different types of prisoner
jobs such as food services, laundry, general maintenance,
lawn care and landscaping, custodial, and animal care
(slide 12).
Representative Joule asked whether the program strategy
listed on slide 11 was specific to non-felons. Commissioner
Schmidt clarified that the strategy applied to all
prisoners.
Representative Joule wondered why sex offender treatment
had not been included in the list on slide 11. Commissioner
Schmidt responded that the list conveyed how the department
approached the programs and was not a list of the programs
it offered. He added that there were community based
programs in Bethel and Juneau.
2:21:45 PM
Commissioner Schmidt moved on to discuss PACE on slide 13.
He relayed that the program was modeled after Hawaii's
Opportunity Probation with Enforcement (HOPE) program. He
reiterated his earlier comments that 200 prisoners were put
back in jail per month; half of the number reflected new
crimes. He furthered that half of the crimes were committed
while an individual was waiting for a court process (e.g. a
warrant to be served or other) and that PACE targeted those
individuals. Under the program, police had agreed to pick
up offenders the day of their offence and the court would
see them within 24 to 48 hours. The program's premise was
that certainty of getting caught deterred negative
behavior.
Commissioner Schmidt relayed that a pilot program had begun
with 30 of the department's highest offenders and within
one week 17 of the offenders were in jail for various
reasons. The prisoners were sanctioned and released in
order to provide them with an opportunity to keep any gains
they had made (employment, etc.). He explained that the
brief jail time worked to keep the probationers from making
violations. The program currently included approximately 70
individuals and DOC was planning to start a domestic
violence PACE model in Fairbanks in the current year. He
stressed that the program offered immediate enforcement and
accountability.
Commissioner Schmidt provided a brief overview of the Goose
Creek Correctional Center on slides 14 through 16. The
facility was expected to be ready for occupancy in March
2012 and included five buildings, 435,000 square feet, 150
acres, and 1,536 beds. The facility would allow for out-of-
state prisoners to return to Alaska and would employ up to
347 individuals. He detailed that the perimeter looked like
DOC maximum security prisons and had dual 12-foot fences
with razor ribbon, observation posts, and armed vehicles;
however, the inside was a medium security facility and
resembled a "city within a city." A post office, medical
clinic, treatment programs, and jobs were all available to
help prisoners with a routine. He stressed that the
department did not want prisoners to adapt to prison.
Commissioner Schmidt discussed that the department planned
to place approximately 30 minimum custody prisoners in the
facility to test the facilities and warrantied systems. The
facility was expected to be ready for full occupancy by
July 2012. He believed that a slow ramp-up was optimal for
both fiscal and security reasons; the first full budget
request would be for FY 14. The department had used the
medium security Palmer Correctional Center and the high
security Spring Creek facility in Seward to develop the
staffing model and operation costs for the facility. The
Goose Creek facility was estimated on the higher end
because it had an intensive medical clinic and special
management unit to use for several hundred prisoners in the
event of misbehavior or pretrial overflow. He relayed that
on a per inmate, per day basis the Palmer facility cost
approximately $68, Spring Creek cost $104, and FY 14 budget
projections for Goose Creek fell in the middle at $86.
2:30:12 PM
Representative Neuman asked what the department was doing
to train correctional officers throughout the state for
work at the Goose Creek Correctional Center. He wondered
whether there were corrections positions that were filled
with out-of-state residents.
Commissioner Schmidt responded that in the past the
department had conducted out-of-state recruitment; however,
currently the recruitments were in-state only. He noted
that there were typically around 100 applicants in response
to one position posting in the Anchorage/Mat-Su/Eagle River
area. The department had conducted a survey of current
correctional officers throughout the state and 67 had
conveyed their interest in working at the new facility. He
explained that approximately one-third of the officers in
the new facility would be existing correctional officers; a
slow ramp-up period would provide time to hire and orient
new officers and would ensure safety at the facility.
Representative Neuman queried what the department was doing
to prepare and train individuals throughout the state to
work at the new facility.
Commissioner Schmidt replied that a six-week training
academy had been opened during the current year at the old
Palmer hospital building. Currently two academies had been
trained in the program. He relayed that there was a good
training staff onsite and that the program may need a
slight augmentation in the future when academies were back-
to-back. He added that people from around the state came to
Palmer for the six-week program. He noted that the
probational academy was slightly different and was split
up.
Representative Neuman wanted to make sure that people from
around the state had an opportunity to work at the new
facility.
LESLIE HOUSTON, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF CORRECTIONS, explained that in FY
11 the department had been placed under three areas of
legislative intent language. The first was the inmate
healthcare component, which focused on the identification
of cost containment measures in an effort to control costs
that had continued to increase. The department was looking
at electronic medical records to help in managed care areas
and was working with the Department of Health and Social
Services and one of its contract partners, Qualis Health
Corporation. The contract corporation assessed the
appropriate levels of care, which would allow DOC to move
forward on a cost-efficient managed care process.
Ms. Houston relayed that the second area of legislative
intent was related to programs. She discussed that DOC had
spent the past year doing data surveillance in all of its
institutions that offered the programs. She opined that DOC
would be able to prove the outcomes of its programs, which
it had not been able to do in past years. The third
legislative intent area was under the Alaska Correctional
Officer Association contract, which had been implemented in
the past year. She noted that the funding had been
appropriated based on a snapshot in time because there had
been a few areas in which DOC had not been able to quantify
(e.g. education incentives, merit increases, geographic
differential, etc.). She discussed that overtime within the
department was directly associated with regular and medical
transport. She opined that getting a handle on inmate
healthcare would help to bring overtime down.
Ms. Houston relayed that there would be a 4.6 percent
funding increase for FY 12. The increase was related to
security confinement in the amounts of $3.6 million for
Goose Creek and $1.3 million for community jails equity.
She elaborated that two years earlier the legislature had
tasked DOC with a complete audit and review of all
community jails to ensure that they were all on equal
ground. There was an increase of $1.5 million related to
inmate medical funding to address medical service fees; the
area had been the most difficult to contain and related to
medical treatment outside of prison facilities. The
department had recently renegotiated a contract with North
Star Community Residential Center and was seeking $900,000
for CRCs and increased beds related to supervised release.
She detailed that DOC had requested interagency receipt
authority related to its reformative programs. The request
would help DOC receive funds from the Alaska Marine Highway
System to support the laundry service program at Lemon
Creek Correctional Center in Juneau.
2:37:35 PM
Vice-Chair Fairclough had heard that there was a high
Alaska Native incarceration rate and wondered whether the
state had worked with tribal entities on restorative
justice. She understood that Alaska Natives received 100
percent reimbursement through federal Indian Health
Services (IHS) compared to Medicaid funds provided by the
state. She asked whether the state was working with the
federal government to provide better health care options
for qualified IHS participants in prison.
Ms. Houston replied in the affirmative. She delineated that
the federal regulations were clear on federal financial
participation for institutionalized individuals. She
explained that inmates were cut-off from all federal
funding including, Medicaid, Medicare, veterans' benefits,
IHS, etc. She believed that Alaska was one of many states
that were in current discussions with the federal
government to determine whether any changes could be made.
Vice-Chair Fairclough encouraged the department to continue
the conversations with the federal government. She opined
that it may be helpful for the administration to examine
the relationship because there were mental health issues
that were overlapping in multiple incarcerated populations.
She opined that locating services could help to reduce
recidivism. She believed that it would be beneficial to
have the ability to provide all available mental health and
other services to incarcerated individuals.
Representative Edgmon asked whether there was a significant
difference between the per bed cost for a diesel operated
facility versus those operated by natural gas. Ms. Houston
replied that she would provide the information at the
subcommittee level.
Representative Edgmon understood that fuel represented a
large portion of an organization's overall cost structure.
Co-Chair Thomas thanked the commissioner and department
staff for addressing the committee.
2:41:48 PM
AT EASE
2:49:40 PM
RECONVENED
^BUDGET OVERVIEW: DEPARTMENT OF REVENUE
BRYAN BUTCHER, COMMISSIONER, DEPARTMENT OF REVENUE (DOR),
introduced department staff and provided a PowerPoint
presentation titled "Alaska Department of Revenue Budget
Overview House Finance Committee." Commissioner Butcher
highlighted that DOR's mission was to collect, distribute,
and invest funds for public purposes (slide 2). He listed
statutory departmental duties including, enforcement of
state tax laws, the collection and investment of state
funds, and to register cattle brands. The DOR core services
were to:
· Coordinate, develop and promote programs for
collection and investment of public funds
· Provide controls and enforcement for the
collection, investment and payment of funds for
the Tax Division, Treasury Division, Permanent
Fund Dividend Division, and Child Support
Services Division
· Provide administrative support for the following
authorities, boards and corporations: Alaska
Retirement Management Board (ARMB), Alaska Mental
Health Trust Authority (AMHTA), Long Term Care
Ombudsman (LTCO), Alaska Municipal Bond Bank
Authority (AMBBA), Alaska Natural Gas Development
Authority (ANGDA), Alaska Housing Finance
Corporation (AHFC), and Alaska Permanent Fund
Corporation (APFC)
Commissioner Butcher highlighted that the DOR budget was
broken into six major components including, the
Commissioner's Office, and the Administrative Services,
Tax, Treasury, Permanent Fund Dividend (PFD), and Child
Support Services Divisions (slide 3). He added that the PFD
Division was responsible for the distribution of dividend
checks and the Child Support Services Division was in
charge of the collection and distribution of child support
payments. He noted that the slide also included various
corporations.
Commissioner Butcher highlighted the department
organizational chart on slide 4. The commissioner oversaw
the deputy commissioners, division director, and
corporations. Jerry Burnett was the deputy commissioner of
the Treasury Division, AMBBA, PFD Division, and Child
Support Services Division. Bruce Tangeman was the deputy
commissioner of the Tax Division and the Criminal
Investigations Unit.
Commissioner Butcher discussed the DOR priority programs on
slide 5:
When dividing the budget into the mission statement's
three priority programs, you will see that investment
is the largest part of the total budget at 50 percent;
distribution and collection are approximately 25
percent each. The smallest slice of the pie indicates
the work of the Long Term Care Ombudsman that provides
safety for Alaskans.
Commissioner Butcher pointed to a pie chart, which broke
down agency functions (left chart on slide 6); the "Safety
for Alaskans" function was under 1 percent and represented
the long term care ombudsman. The pie chart on the right
hand side of slide 6 showed priority programs by fund
group. Almost two-thirds of DOR funds were in the "Other
Funds" category such as, APFC receipts, AHFC receipts, and
other (non-general fund) state funds. Federal funds made up
approximately 25 percent of the budget and unrestricted and
designated general funds made up 13 percent.
2:54:01 PM
Vice-Chair Fairclough wondered whether there had been a
downturn in federal funds.
GINGER BLAISDELL, DIRECTOR, ADMINISTRATIVE SERVICES
DIVISION, DEPARTMENT OF REVENUE, replied that there were a
variety of federal fund groups. She relayed that there had
been a slight downturn that she would look into and follow
up on. She noted that AHFC occasionally had special
projects, but that the child support funds tended to be
very stable.
Commissioner Butcher added that the department would get
back to the committee with more detail. He remarked that
the budget showed a large uptick in federal funds for the
current year due to the inclusion of $36 million in Section
8 public housing payments, which had not been included in
past years. He furthered that there was a $4 million
reduction in federal funds for FY 12.
Vice-Chair Fairclough asked for an apples-to-apples
comparison. She believed that the absence of the "Ted
Stevens Effect" would be a loss to Alaska and wanted to be
able to chart any losses that may occur.
Commissioner Butcher directed attention to the "Challenges
and Successes" of the department (slide 7). He discussed
the category titled "Predicting the Future," which included
work the department did to determine where and how to
invest funds. He highlighted the department's fall 2010
Revenue Source Book, which listed historical information on
oil revenue sources and other tax collections in addition
to future predictions on the price of oil and production
levels. He noted that each source book had a unique focus
and that the current book had a chapter on tax credits. The
department had provided a book to each legislative office.
Representative Costello asked how DOR estimated pipeline
throughput and whether its past predictions had been
accurate.
Commissioner Butcher responded that DOR contracted with a
number of petroleum industry experts who utilized
information provided by the oil and gas industry,
calculations on the maturity of oil fields, new fields
scheduled to come online. Predictions were never exact, but
they had been fairly close over the past five years. He
explained that the department was not able to predict the
stoppage of throughput due to pipeline shutdowns. He
detailed that the state had lost approximately $80 million
due to a pump station leak several weeks earlier. The
department could provide members with a detailed view on
its forecast methods at a later time.
Representative Edgmon wondered how DOR invested funds for
other departments and what was done with any spinoff
revenue. He referred to a Department of Transportation
bridge project that had been part of a bond package; the
bonds had been sold and he wondered whether DOR managed the
money.
2:59:47 PM
Commissioner Butcher replied that due to arbitrage rules
the department was limited on the amount it could make once
an invested bond had been sold. He believed the return
would be minimal. He noted that Jerry Burnett was available
to provide additional detail.
Representative Gara explained that the committee had been
told there would be a delay in the Liberty oil field
startup. He wondered about the reason and length of the
delay.
Commissioner Butcher responded that he did not have
additional detail on the delay. The delay had been
described as a "breather" in the press. He explained that
the forecast had been compiled prior to the announcement by
BP; therefore, the delay had not been factored in. He would
work to provide additional detail to the committee.
Representative Gara wondered whether BP had put some of its
large projects on hold due to the financial trouble it had
experienced as a result of the recent oil spill in the Gulf
of Mexico. Commissioner Butcher did not want to speculate
on the issue.
Representative Guttenberg asked whether the department
tracked and compared the success of the investment
strategies used for each of the funds (e.g. Constitutional
Budget Reserve (CBR), AMHTA, etc.).
Commissioner Butcher answered that he was not aware of a
specific tracking of all of the funds. He noted that the
strategies were different from the Permanent Fund
Corporation, which invested in long-term strategies. He
noted that entities such as AHFC were required to have a
significant amount of liquidity and invested primarily in
short-term strategies. He would follow up with comparisons
between funds and their benchmarks.
Representative Guttenberg asked whether DOR investigated
oil spills to determine if a company had been negligent and
whether it should compensate the state for loss of revenue.
He referenced a recent spill and a BP spill on the North
Slope that had occurred in 2004.
Commissioner Butcher replied in the affirmative. The Tax
Division was responsible for determining whether a spill
had occurred due to a natural disaster (e.g. an earthquake
or other) or due to negligence.
Representative Guttenberg wondered whether the research was
public. Commissioner Butcher replied that the question fell
under the purview of the Department of Law.
3:04:49 PM
Vice-Chair Fairclough asked for a comparison between oil
production and price forecasts versus actual production and
price for the past 10 years. She referenced data that
showed a negative prediction over the past 10 years and
thought it may have been related to price.
Commissioner Butcher believed that predictions would have
shown a tremendous volatility in price. He would provide
the committee with detail at a later time.
Representative Gara opined that the state was not good at
marketing to potential oil producers. He discussed the
positive aspects of the royalty relief credit, which he
believed was under the Department of Natural Resources
(DNR); he thought the credit should be listed in the DOR
book as well. He explained that taxes on an existing or new
field would be reduced if they were too burdensome for a
developer. He requested that the departments look into
advertising the credit.
Commissioner Butcher agreed. He had advocated for becoming
more aggressive on the issue in recent conversations with
the DNR commissioner. There was an upcoming North American
Society of Petroleum Explorers meeting where DOR and DNR
would focus on the issue. He emphasized that both
departments were working to ensure that the state did not
lose business due to a lack of initiative and communication
to companies.
Representative Gara believed that a lack of focus on the
issue would be a missed opportunity.
Commissioner Butcher continued to discuss the department's
challenges and successes (slide 8). He relayed that staff
recruitment continued to be a challenge. The chief
economist position had been empty for a couple of years and
the assistant chief economist position had been empty for
one year. He explained that the pay level did not attract
qualified applicants and DOR was working on the issue.
Three out of four master auditor positions were filled and
DOR was optimistic it would fill the last position in the
current fiscal year. There were two vacant commercial
analyst positions, but DOR believed it would fill them
during the current fiscal year as well.
Representative Guttenberg asked whether the positions had
been exempted from the normal pay policy. Commissioner
Butcher replied in the affirmative. The master auditor and
commercial analysts fell into the exempt category.
Representative Guttenberg queried whether any of the
positions had been filled.
Commissioner Butcher responded that three of the four
master auditor positions had been filled and the department
was happy with their work. The commercial analyst positions
were new as of the current fiscal year and DOR was
confident it would fill the positions.
3:11:43 PM
Commissioner Butcher continued with challenges and
successes (slide 8). He delineated that there had been some
information technology issues in the department wide
network infrastructure; however, significant improvements
had been made in the current fiscal year. He referenced
that PFD filing issues related to "Click, Pick, Give" had
been resolved. He explained that the Integrated Tax System
software was in the review process and would help improve
input and output for the Tax Division. The legislature had
appropriated $300,000 to review the system and to ensure
that sufficient funds would be allocated.
Commissioner Butcher pointed to slide 9 and discussed that
DOR had received FY 11 funding for a one-year long term
care ombudsman investigator position due to an increase of
complaints to the long term care ombudsman. He noted that
unfortunately the number of complaints had remained high;
therefore, DOR had made a request to make the position
permanent in FY 12. The Criminal Investigations Unit
brought together the criminal investigations positions from
the PFD Division, Child Support Services, and the Tax
Division and had increased the amount each division had
brought in. He discussed the department worked with the
AMHTA on public safety issues for the mentally ill and AHFC
housing and weatherization programs that focused on
increasing residential energy efficiency and life safety
issues.
Representative Guttenberg thanked DOR for solidifying life
safety functions in homes.
Commissioner Butcher clarified that there had been separate
raters under the weatherization program and the home energy
rebate programs; the corporation was working to combine
them into one position. He explained that the much more of
the life safety focus had been under the weatherization
program because the program had been directed at lower
income households.
Commissioner Butcher pointed to oil and gas issues on slide
9. The DOR and DNR commissioners headed the Alaska Gasline
Inducement Act (AGIA) effort. He relayed that negotiations
were currently underway following the results of the open
season; TransCanada had hoped to bring information forward
at the beginning of the year; however, the process had
moved more slowly. The department hoped to be able to
provide an update to the committee in the near future. He
explained that one of the biggest challenges for the Tax
Division was to the transition from the Economic Limit
Factor (ELF) to the Petroleum Production Tax (PPT) and
subsequently to the Alaska's Clear and Equitable Share
(ACES). He noted that the division had begun to catch up
with the audit lag related to the tax transitions and was
working more smoothly than it had in the past couple of
years.
3:16:48 PM
Commissioner Butcher briefly discussed DOR work conducted
during legislative session (slide 10). He detailed that the
prior session DOR had been impacted by more than 275 pieces
of legislation; 48 of the bills and 17 resolutions had been
passed. He expounded that staff had prepared 116 fiscal
notes, drafted regulations, and had worked to improve
statutes.
Ms. Blaisdell discussed the DOR FY 11 budget summary by
division (slide 11). She relayed that the Child Support
Services Division had been impacted by American Recovery
and Reinvestment Act (ARRA) funding; there was an
additional increment in the FY 12 budget request to
reinstate some of the federal funds. The Treasury Division
had added an investment officer to replace an external
manager, which had saved approximately $850,000 in
management fees for a $250,000 person. She communicated
that as of the prior year, CBR management fees were paid
with general funds instead of CBR funds.
Ms. Blaisdell continued to discuss the FY 11 budget
summary. The primary funding for the Administrative
Services Division was related to emergency computer support
due to some system failures. She shared that under the
commissioner's office $50,000 had been appropriated for the
AGIA reimbursement audit; there was an increment for
$125,000 in FY 12 because the audit had been much more
intensive than originally anticipated. The commissioner's
office had also been given $1.5 million to review the
fiscal analysis of the gasline terms, which had currently
not been spent. There had been an appropriation for
$250,000 to the Tax Division for the AGIA Information
Reporting System, which looked at incoming AGIA reports and
how to communicate the information. She touched on the
petroleum commercial analyst positions the department hoped
to have filled in the near future.
Ms. Blaisdell communicated that the PFD Division had been
given $100,000 for Dot.Net system training. The software
had been used to develop the PFD system; funds in the same
amount were included in the FY 12 budget request, given
success in the current fiscal year. Approximately $75,000
had been appropriated to pay for increased chargeback fees,
the replacement of the central postage machine, and other.
She noted that funds had been received for the temporary
long term care ombudsman investigator position. She
concluded the summary with detail regarding AMHTA. She
explained that the corporation submitted its operating
budget, which was backed out in full and requested again.
She noted that the process looked slightly unusual;
however, it had been used for a number of years.
Representative Costello believed the $3 million increment
for management fees seemed high and asked for detail on the
cost. Ms. Blaisdell replied that the FY 12 CBR management
fee request was for approximately $2.5 million out of the
general fund.
Representative Costello wondered why the increment was $2.5
million. She reiterated that the fee appeared high.
3:21:49 PM
JERRY BURNETT, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
answered that the Treasury Division managed $10 billion and
approximately $3.5 billion of the amount was externally
managed. He communicated that the $2.5 million in
management fees was measured in basis points and was not
unreasonably large. He added that the figure seemed large;
however, there was a significant amount of money under
management. He noted that the cost was less than the cost
of management for the retirement funds or the permanent
fund.
Representative Costello asked why the appropriation would
come from the general fund in the current year.
Ms. Blaisdell answered that in the prior year there had
been discussions in the finance subcommittees that a CBR
appropriation required a three-quarter vote by the
legislature. She explained that the legislature had decided
to pay for the investment fees out of the general fund in
order to eliminate the requirement. She furthered that
every time money had been spent out of the CBR a liability
had been created, which required the state to re-pay the
funds; therefore, the legislature decided to use general
funds up front.
Representative Gara discussed that felons did not receive
PFDs and that the money should be given to their children
who were owed child support. The legislature had passed a
bill that gave DOR the discretion to take the funds and
provide them to established child support arrears. He
understood that the funds currently went towards funding
important victims' services; however, he did not understand
why the funds did not go to owed child support. He
discussed current legislation that would mandate the
department to provide the funds to the Child Support
Services Division. He believed that children were a
priority and asked DOR to think about and follow up on the
issue. He did not want funds to be taken from victims, but
he believed children should receive funds as well.
Commissioner Butcher responded that DOR was looking at the
issue and would follow up with the committee.
3:27:23 PM
Representative Doogan asked whether the CBR management fees
were approximately $2.5 million. He wondered whether the
permanent fund management fees totaled $14.1 million.
Ms. Blaisdell answered the $14.1 million represented the
requested FY 12 increment. She explained that the division
had approximately $90 million in investment management fees
on the books.
Representative Doogan surmised that the total would be
slightly over $100 million if the current request was
granted. Ms. Blaisdell replied in the affirmative.
Commissioner Butcher elaborated that the $2.5 million was
an increment as well and did not represent the total
amount. He noted that the department would provide the
total amount to the committee.
Representative Doogan asked for a description of the
additional third-party fiduciary work that was included in
the $14.1 million increment shown in the Legislative
Finance fiscal analysis.
Commissioner Butcher responded that the department would
follow up with the requested information.
Vice-Chair Fairclough believed that the fees should be
looked at as a percentage of the total money that was
managed. She reminded the committee that there the
permanent fund (approximately $38 billion) and the CBR were
both managed under many different strategies. She explained
that different fees were associated with the various
investment strategies and that the costs were in line with
typical management fees.
3:30:54 PM
Ms. Blaisdell discussed that the legislature had
appropriated a total of $2.2 million to the department for
FY 11, which represented approximately $850,000 in savings;
the majority of the funds went to one-time items. The FY 11
fiscal note total was $7.9 million in addition to
approximately $51 million to AHFC and the Alaska Gasline
Development Corporation (AGDC). She communicated that the
department's budget did not grow substantially on an annual
basis; however, it was heavily impacted by fiscal notes.
Ms. Blaisdell highlighted the department's FY 12 budget
request (slide 13). The department had requested funds for
CBR management fees, child support services federal funding
adjustments due to the end of ARRA, server license fees for
the department network system, $125,000 in AGIA audit
funding, and creating a Criminal Investigations Unit, which
combined investigators from the Child Support Services,
Tax, and PFD divisions to allow for shared information.
There was a $167,000 increment for an AMHTA drug and
alcohol position; the position was a coordinated effort
between the Mat-Su borough, Providence Health Systems, and
AMHTA (slide 14). The budget also proposed funding to make
the long term care ombudsman position permanent and for
travel costs (currently most of the investigations were
conducted in the Anchorage area or by phone).
Commissioner Butcher discussed that AHFC was requesting a
small amount of receipts related to veterans' bond sales
(slide 15). Federal housing assistance payments represented
Section 8 vouchers paid to landlords, which had previously
been a pass-through. The Legislative Finance Division had
suggested that the funds be included in the AHFC budget;
therefore, funds had been backed out and put back in. He
noted that federal receipts were $4 million less than they
had been for FY 11. The AGDC plan for a gasline was due on
July 1 and $1.095 million had been included in the FY 12
budget to account for staff to continue any potential
research and work.
Ms. Blaisdell addressed the FY 12 budget request for the
APFC on slide 16. The corporation had requested $115,000
for operation costs, $319,000 for salary management plan
funding, and additional costs for investment management
fees. She noted that APFC would provide more detail to the
committee at a later time.
Commissioner Butcher read concluding remarks from slide 17:
· The Department of Revenue is the state's largest
fiscal manager. We pride ourselves in prudent
investment practices for a variety of programs
and needs.
· Our customer service divisions of PFDD and CSSD
have notably improved their business practices as
many of you have noticed the decreased
constituent concerns in these areas.
· The Tax Division is one of the busiest areas of
the department as they work closely with every
taxpayer in Alaska and are frequently involved in
tax policy decisions contemplated by the
legislature.
· Our corporations receive national recognition for
their exemplary program management and fiscal
solvency.
Co-Chair Thomas thanked Commissioner Butcher for addressing
the committee.
ADJOURNMENT
The meeting was adjourned at 3:37 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DOC Overview - HFIN (01-31-11).pdf |
HFIN 1/31/2011 1:30:00 PM |
|
| DOR Overview HFIN 013111 PDF.pdf |
HFIN 1/31/2011 1:30:00 PM |