Legislature(2017 - 2018)HOUSE FINANCE 519
01/23/2018 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB285 || HB286 | |
| Fy 19 Budget Overview: Legislative Finance Division | |
| Presentation: Personal Services Vacancy Factor | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 286 | TELECONFERENCED | |
| *+ | HB 285 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
January 23, 2018
1:33 p.m.
1:33:43 PM
CALL TO ORDER
Co-Chair Seaton called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
David Teal, Director, Legislative Finance Division; Amanda
Ryder, Fiscal Analyst, Legislative Finance Division;
Representative Harriet Drummond; Representative Chris
Birch; Representative Justin Parish.
SUMMARY
HB 285 APPROP: MENTAL HEALTH BUDGET
HB 285 was HEARD and HELD in committee for
further consideration.
HB 286 APPROP: OPERATING BUDGET/LOANS/FUNDS
HB 286 was HEARD and HELD in committee for
further consideration.
FY 19 BUDGET OVERVIEW: LEGISLATIVE FINANCE DIVISION
PRESENTATION: PERSONAL SERVICES VACANCY FACTOR: LEGISLATIVE
FINANCE DIVISION
Co-Chair Seaton reviewed the meeting agenda.
HOUSE BILL NO. 285
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
HOUSE BILL NO. 286
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making supplemental appropriations;
making appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska, from the
constitutional budget reserve fund; and providing for
an effective date."
1:34:46 PM
^FY 19 BUDGET OVERVIEW: LEGISLATIVE FINANCE DIVISION
1:34:46 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
provided a PowerPoint presentation titled "Overview of the
Governor's FY19 Budget Request and Plans" dated January 23,
2018 (copy on file). He preferred to hear questions
throughout the presentation.
Co-Chair Seaton recognized Representatives Harriet Drummond
and Chris Birch in the audience.
Mr. Teal planned to address the abbreviated version of the
fiscal summary. He noted that the full version of the
fiscal summary was available and was on page 8 of an
overview of the governor's budget. He explained the reason
for looking at undesignated general funds (UGF) only. He
detailed that federal funds, designated general funds
(DGF), and other funds were not used because it was not
possible to spend more than was available. He elaborated
that even if there was authorization to spend $1 million,
if only $700 million [$700,000] in federal funds was
received, the lower amount was all that could be spent.
There could not be any deficit on federal, other, and DGF
funds. The only place it was possible to have a deficit was
the UGF category. He understood there were others who were
interested in total spend, which he was not trying to say
was unimportant. The presentation was meant to focus on the
deficit; therefore, it was limited to UGF.
1:38:25 PM
Mr. Teal began on slide 2, which included a table titled
"FY19 Revenue and Appropriations." The slide showed UGF
only on a cash flow basis. Revenue of approximately $2.1
billion excluded transfers from the Permanent Fund Earnings
Reserve Account (ERA) - there was no percent of market
value (POMV) payout included. He elaborated that revenue
was primarily from oil and also included interest, taxes,
and other. He pointed to appropriations totaling $4.6
billion, which was broken out into agency operations,
statewide items, and capital. Appropriations excluded
Permanent Fund Dividends (PFD) and transfers to or from
reserves. There was a small $21 million transfer from
reserves, but it was excluded from the table. The table
also excluded items that required legislative action beyond
a simple majority vote; the table was limited to cash
received without drawing from the Constitutional Budget
Reserve (CBR). The goal was to present an accurate picture
of the fiscal situation based on cash flow only and no draw
from reserves.
Mr. Teal continued to address slide 2. Bills had also been
left out of the equation and would continue to be left out
until a bill passed. The table also excluded an
appropriation to purchase oil and gas tax credits. The aim
was to get a clean start in order to see how much
corrective action was necessary. The difference between
revenue and appropriations showed a $2.5 billion deficit.
He underscored that the table did not show the governor's
plan. He referenced a debt purchase plan on oil and gas tax
credits. He detailed that if a person believed the state
owed the minimum statutory amount and had to purchase the
credits, the budget was missing $206 million. The governor
planned to introduce legislation for the tax credits and
had excluded the $206 million from the budget. He detailed
the governor's legislation would allow the state to sell
bonds with an interest of $27 million. He stated that a
person could argue they wanted a fiscal note for that plan.
The governor did not request money to purchase oil and gas
tax credits in the version of the fiscal summary under
consideration. He continued that even if the bill did not
pass, the governor did not have to request funds to
purchase oil and gas tax credits. He expounded that if the
legislature wanted to add the funds that was fine, but the
governor did not have to follow the minimum statutory
requirement.
1:42:41 PM
Mr. Teal stated that it was possible to argue that the
proposed budget understated the deficit and it should be
$2.7 billion. One could argue that a worse deficit had been
seen, which was correct; however, the current year was a
game changer. He detailed that the reserve balance of $2.1
billion in the CBR and $172 million in the Statutory Budget
Reserve (SBR) totaled $2.4 billion. The savings were
insufficient to fill the deficit even before the amount
owed for oil and gas tax credits.
1:43:53 PM
Vice-Chair Gara stated the previous year there had been
discussion about starting to include the PFD as spending.
He noted that based on LFD charts, spending was down about
$3.5 billion with capital and operating. He asked if LFD or
the governor planned to begin counting the PFD as spending.
Mr. Teal replied that the cash flow slide excluded the
payout from the Permanent Fund to the General Fund and
dividends. The governor's budget included a payout to the
GF and dividends from the payout; dividends became a GF
expense.
Vice-Chair Gara surmised that LFD was not planning to do
the same thing. He stated that a constituent had looked at
the governor's budget and thought it raised spending by $1
billion. He explained that the increase was the result of
including the PFD - the cost had never been included in the
past. He asked what LFD thought.
Mr. Teal replied that the current and previous year, LFD
had included the PFD as a GF expenditure in the fiscal
summary. He had not included it in the current slide
because it only reflected cash flow. He intended to address
two additional versions to arrive at the governor's view of
the budget. He explained that the governor had proposed
transferring money from the ERA to the GF and paying
dividends from that deposit. He elaborated that LFD would
present the information that way and had done so up to the
end of session the prior year when there had been no payout
to the GF and an appropriation had been made directly from
the ERA to the dividend fund. He stated that the payout had
not gone through the GF the prior year and that was how LFD
would present it.
Mr. Teal explained that it was the reason there were
comparisons that were difficult to make. The way to make
the comparisons equal was to show dividends as revenue to
GF and an expenditure from GF so the $1 billion increase in
spending did not occur. It was not technically accurate to
say that dividends had been paid from GF, but they were
treated that way in order to make the comparisons easier.
1:47:45 PM
Representative Ortiz asked if the $27 million the governor
had set aside to pay interest on bonds for oil tax credits
was included in slide 2. Mr. Teal replied in the
affirmative.
Representative Wilson asked if retirement or anything that
may be DGF and everyday costs were included.
Mr. Teal preferred to answer the question throughout the
presentation in order for everyone to see how it worked.
Representative Wilson clarified she was interested in
anything qualifying as DGF that could end up being
something else at a later time. She remarked the committee
had the discussion that everyday operating had been out of
a different fund and qualified under DGF; although, at some
point the DGF funds could run out and would mean the use of
GF. She elaborated that she was referring to anything that
may be in the budget as DGF, but had only been put there
because higher education money [or other DGF sources] may
be available, but not necessarily what it would be utilized
for. She believed there were some things funded with DGF
that should have probably been in UGF.
Mr. Teal replied it was an excellent point. He detailed
that over the past couple of years higher education funds
had been used to pay for retirement costs. He explained UGF
expenditures were seen for that purpose. The prior year the
legislature had included intent language asking the
governor not to repeat the practice. The governor's
proposed budget funded retirement from the CBR. He would
address the issue later in the presentation.
1:50:30 PM
Mr. Teal moved to a bar chart showing budget reserves on
slide 3. He discussed that the current situation where
reserves were not sufficient to fill the deficit should not
come as a surprise. The slide was based on an LFD model
from 2015, which showed that reserves would not last
through FY 19. Projections were merely projections and it
was easy to ignore them, especially when they were not
desirable. However, they were no longer looking four or
five years ahead. He underscored that the future was here,
and reserves were essentially gone if the CBR was used to
balance the budget in the current year; there was
insufficient money to do so. Alternative options for fixing
the deficit included new revenue such as taxes, additional
expenditure reductions, and money from the Permanent Fund.
He remarked it was up to the legislature to decide on the
combination it would use, but a balanced budget was
constitutionally required prior to the legislature's
departure.
1:52:19 PM
Mr. Teal turned to slide 4 and addressed the primary
strategy the governor had proposed to fix the deficit -
Permanent Fund earnings. The table included UGF only, cash
flow basis, and POMV and transfers. The table included POMV
payout of $2.7 million (5.25 percent); of the $2.7 million,
$819 million went to dividends, leaving a net revenue gain
of $1.9 billion. The slide showed revenue of $4.8 billion.
He emphasized that the table did not reflect the governor's
plan; it was merely a step in getting there. The first step
used by the governor was a POMV payout, which went a long
way. The table added transfers, which was pulling money
from small funds/accounts; in the current case it was the
capital income fund.
Mr. Teal explained that more was being taken out than put
in by $21 million in the current budget. The math was
simple: there was a $2.5 billion deficit, reduced by $1.9
billion, leaving a $600 million deficit, which was an
improvement. After filling the deficit from budget
reserves, the reserves would have $1.8 million remaining.
Some people may say there was no need to panic - $1.8
billion spent at $600 million per year meant three years
before the state was out of reserves if the budget
continued to be paid with a POMV payout. Others may argue
that it [the deficit] was not $563 million because the
governor did not include $200 million for tax credits and
retirement may be underfunded. He explained that when
factoring in the $200 million, reserves dropped to $1.6
billion and the deficit went up closer to $800 million,
which left two years of reserves. How long the reserves
would last was tenuous.
Mr. Teal believed the committee had heard several times
that the Office of Management and Budget (OMB) and LFD
would prefer one year's worth of reserves ($5 billion -
roughly one year's worth of spending) in the CBR, but $2
billion was a goal now that the fund was long past having a
$5 billion balance. He noted that OMB had said the balance
should not drop below $1 billion for cash flow purposes.
One could glean from the table that a POMV payout would get
the state through FY 19, but there would still be a deficit
to fill in FY 20 and FY 21. He cautioned it would be harder
and harder to fill the deficit, leaving lower and lower
reserves, unless something else was done (i.e. raise taxes
or cut spending).
1:56:11 PM
Mr. Teal stated that it did not get all the way to the
governor's plan. He moved to a table showing the governor's
budget on slide 5, which included a column showing
additional items. The slide included an additional $200
million in revenue from payroll and motor fuel taxes,
bringing the total revenue to slightly over $5 billion. The
payroll tax was projected to bring in $160 million in the
first year and motor fuels taxes would generate $40
million. However, the plan would spend $309 million more.
He detailed that $29 million came from fiscal notes on the
three bills the governor had built into his budget. He
noted the bills had not yet passed, but LFD had counted
them. Additionally, the governor's plan included an
economic recovery act. He referenced $160 million in
revenue and noted that the bill [payroll tax legislation]
would spend $280 million in the first year.
Mr. Teal believed there were three issues of small
digression on the economic recovery act. The bill allowed
the legislature to appropriate the balance of the fund (the
fund balance came from the tax revenue - $160 million). He
reasoned the bill specifying the balance could be
appropriated, was not being followed if the balance could
not exceed $160 million and $280 million was appropriated.
He continued that OMB did not believe it was a problem
because it did not intend to spend more than $160 million.
He explained that LFD questioned why the money would be
appropriated during the current budget cycle if OMB did not
plan to spend it; LFD thought the appropriation should be
held off until FY 20. It was necessary to ask OMB about the
reasoning because LFD did not count that way.
Mr. Teal continued that LFD counted the money the year it
was appropriated; it did not count the amount of money
spent on the project each year - it would require an
incredible amount of work to track all of that. If $280
million was appropriated and there was only $160 million in
the fund, there was not enough money to spend. However, it
was not true in the current situation because the bill
would create a sub-fund to the GF and any expenditure
exceeding the balance in the sub-fund would come from GF.
It was not what was intended to be done, but what could be
done that LFD worried about; therefore, LFD counted it as a
$280 million appropriation.
Mr. Teal spoke to a third issue pertaining to the bill. He
explained that it was a plan that required tax legislation
to pass. He asked what would happen to the regular capital
bill if the tax legislation did not pass. He wondered if
the capital bill would increase because perhaps several of
the things in the economic recovery act were things the
legislature wanted, but the governor had moved them from
the regular capital budget into the economic recovery act.
He furthered that if the legislature did not pass the tax,
it could choose to move money back into the capital budget,
thereby increasing the deficit. With the new revenue,
appropriations, and transfers, the governor's deficit would
be closer to $700 million
2:00:55 PM
Mr. Teal continued that the governor proposed to fill the
deficit with a firm draw from the CBR. He explained that
the governor's fiscal summary showed a $400 million draw,
whereas the LFD summary showed $425 million. The governor's
bill also included a reduction of CBR spending if savings
in retirement were achieved related to decreased medical
costs. He detailed that when contingent appropriations were
made, meaning they were dependent on something else
happening such as achieving savings, LDF put in the maximum
value, while OMB put in the minimum value. He elaborated
that LFD used maximum value because it wanted the
legislature to know what could happen - LFD did not want to
paint a rosier picture than what may occur.
Mr. Teal provided a scenario where a supermajority vote
occurred on the $400 million and it turned out the savings
were not achieved. He considered whether it would mean
getting another supermajority vote for an additional $25
million. He stated that LFD did not want to go there and
showed the item as withdrawing $425 million. He explained
it was better to spend less from the CBR than what was
appropriated rather than to be stuck spending more than
what was appropriated. He added that supermajority votes
were not easy to get. He pointed out that there was an
imbalance even using all of the reserves including the SBR
resulted in a negative number.
Mr. Teal stated that the governor was required to submit a
balanced budget. He did not characterize the governor's
proposed budget as a constitutional crisis; the governor
had backed into the CBR spending by showing revenue and
appropriations and specifying the amount needed from the
CBR. He detailed that LFD had found some errors including
double counting of some revenue and undercounting of some
appropriations. Slide 5 showed a deficit of $74 million,
which could be fixed in the governor's amendment process if
so desired. He stated that it was merely a math equation
that had arrived at the $425 million. He remarked the
figure could just as well be $500 million and the deficit
would go away.
2:04:30 PM
Mr. Teal advanced to slide 6 that showed a comparison
between FY 18 and FY 19 (UGF) and was intended to add
perspective to the discussion. He remarked that the
comparison was not as easy as it may seem because the
governor had released a transparent budget report showing a
reduction of $150 million from FY 18 to FY 19. The fiscal
summary did not show the same $150 million reduction; it
showed a reduction of $257 million. While the LFD fiscal
summary showed an increase of $287 million. He relayed that
LFD had provided OMB with the 16 points of difference
between the OMB and LFD fiscal summaries. He addressed the
two primary differences. First, was the $400 million to
$425 million spent from the CBR. The governor said spending
from the CBR was not UGF spending, which was true - the CBR
was constitutionally created as another fund. However,
taking $400 million from the CBR and saying it reduced UGF
spending was unhelpful. He stated that LFD did not count
that way and he advised against doing so. He continued that
it implied another $700 million could be taken from the CBR
to fill the deficit and reduce UGF spending by $700
million. He believed the method fooled the budget makers
and the public.
Mr. Teal reported that the supplemental items were the
second difference. He discussed that the operating and
capital bills contained a number of FY 18 supplemental
requests totaling about $170 million. The governor added
the supplementals to the FY 18 prior to making a comparison
to FY 19. He advised against counting that way (LFD did not
use that method). He continued that it was possible to
increase the budget every year, but the numbers would show
it was declining - it was a distortion that LFD avoided by
not counting supplementals. The other way to do it would be
to count FY 18 and FY 19 supplementals, but the FY 19
supplementals were not yet known. He added that the FY 18
supplementals were not even known; the legislature would
not see a full supplemental bill for another week for FY
18. He concluded that LFD believed the legislature was
better off leaving supplementals out of the calculation
entirely.
2:08:45 PM
Representative Wilson asked if the supplementals were added
in the FY 17 actuals in order to see what should have been
spent in that year.
Mr. Teal replied in the affirmative. The supplementals were
shown in the FY 17 actuals. He explained that supplementals
should be counted, which was the reason looking back
historically actuals were often counted instead of
management plan. He detailed that if supplementals were not
counted somewhere, there was an incredible incentive to
underfund the budget. For example, the legislature could
underfund Medicaid to deal with the current deficit of $600
million. The governor could come back with a supplemental
and it would appear the FY 19 budget had been cut by $600
million. It was a question of when the money should be
counted, not whether it should be counted.
Representative Wilson asked how to stop the supplementals.
She understood that supplementals were necessary for things
like earthquakes. She stated that Medicaid had been
underfunded by over $100 million, which was now in the
current budget. She asked whether the money would come out
of FY 19 if the legislature chose not to fund the [FY 18]
supplemental.
Mr. Teal answered that only the legislature could stop
supplementals. He explained that in the case of Medicaid,
the legislature would fund to the projections (assuming the
projections could be trusted). He stated it was a big "if"
having seen the number of supplementals and how far off the
projections had been from actuals. He mentioned that
because of the situation LFD had met with Department of
Health and Social Services (DHSS) staff during the interim
to talk with the department about participating in its
projection process. Unless the legislature was comfortable
with the projections, DHSS may not get the money it needed
to run its program.
Mr. Teal confirmed that the [FY 18] supplemental would
eventually get funded anyway if the legislature chose not
to fund it, though not in FY 19. He detailed that in an
entitlement program like Medicaid, people who were eligible
were entitled to get healthcare. When the individuals
received care, the state owed and paid the healthcare
provider. The state then received federal reimbursement;
however, much more had been spent on Medicaid in FY 17 and
FY 18 than anticipated. The supplemental was $100 million,
$92 million of which was Medicaid. If the supplemental was
not passed, the department would say that the money left
the treasury and it could not get the money back, but it
had to give the money back to the legislature as a
ratification. He explained that ratification meant
ratifying expenditures that left the treasury without an
appropriation. The [state] constitution specified that no
money could leave the treasury without an appropriation.
His description showed how money did leave the treasury
without an appropriation. The situation left the
legislature with no choice but to ratify the expenditure by
approving the money going out. He concluded it was a long-
delayed appropriation.
2:13:49 PM
Representative Pruitt spoke to truth in budgeting. He
stated that the amount spent in a particular year because
of supplementals was larger than the initial budget that
was passed. He thought adding the supplemental in at
present made it look like a reduction was taking place;
however, ultimately there may be a supplemental that
increased the budget over the last year's budget. He asked
how to ensure truth in budgeting.
Mr. Teal responded that the legislature could work as hard
as it wanted to reduce supplemental budgets, but they would
always persist; however, they could be reduced. He cited
examples of wildfire costs and other. He added that the
Office of Public Advocacy and the Public Defender Agency
routinely came in for supplementals. He reasoned it was
something that should probably not happen. He stated that
an agency, for operating costs, should probably not come in
for 20-something consecutive years for a supplemental
because of constant underfunding. Medicaid was the same
way. To the extent that the legislature could fully fund
programs, it would avoid the distortion caused by
supplementals. He continued that it was not necessarily
possible; projections were just projections. He reminded
the committee that Medicaid cost about $15 million per
week. Consequently, if the budget was off by two days of
checks, a $5 million supplemental would result. He did not
believe supplementals could ever be eliminated, but they
could be reduced. The other distortions in budgeting were
crossing fiscal years, using DGF for non-designated
purposes, and using one-time money for ongoing operating
costs. All of the things would come back to haunt the
legislature in the future and distort the year-to-year
comparisons, making it difficult to compare one year to the
next.
2:17:47 PM
Vice-Chair Gara stated that the administration's
explanation on the Medicaid increase was that it had
reduced Medicaid reimbursement to physicians, but an
increased number of people had showed up for more claims
and federal law required paying for them. He asked if Mr.
Teal disputed the administration's explanation.
Mr. Teal replied that there were a number of things going
on with Medicaid. Several people blamed the cost increase
on Medicaid expansion, but that was not the cause. Medicaid
expansion had added more people, mostly at federal expense;
there was some GF, but it was not the cost driver. The
driver on the big supplemental was that Medicaid had been
underfunded the previous year. Some people had thought it
had been underfunded by $30 million to $40 million, but
they also had hopes that Medicaid could contain its costs.
The hours of a particular service had not been cut the way
they had been planned.
Mr. Teal did not believe DHSS would have agreed it had been
only underfunded by $30 million to $40 million. He reported
that an RPL [revised program legislative] had come in
during the interim showing that DHSS had been underfunded
somewhere between $60 million and $100 million. He shared
that it had not been a big surprise when the budget came
out in December [2017]. The department would have told
legislators it was underfunded the day the legislature left
[in 2017]. It did not do any good to underfund that way. He
stated that Medicaid could not control its costs, once a
person was eligible, the reimbursement rate was set, and
service was provided, the money was spent. It was a
question of believing their projections and funding
Medicaid at the projected amount. He elaborated that it may
leave some supplementals or may leave a little over
appropriation. Until that was done, there would be
supplementals.
2:21:10 PM
Representative Guttenberg reasoned that some parts of the
discussion about supplementals was academic because
whatever happened with Medicaid was one thing, but the day
after the budget passed fuel prices may rise resulting in
costs for Alaska Marine Highway System (AMHS), there may be
a bad fire season, and other. He stated that $50 million in
costs for wildfires was not unusual. He referenced an
earthquake that occurred early that day, which could have
resulted in a coastal disaster. He was uncertain how the
state would ever get away from supplementals. He did not
know how other states dealt with it in a different way. He
believed it was how the legislature trusted the
supplementals and projections and how it was dealt with in
charts. He questioned whether there was a superior way of
dealing with it in the budget documents that would provide
more confidence. He wondered if the situation had evolved
to a place where it was the best it could be.
Mr. Teal answered that the system had not evolved to the
best it could be. He referenced the $170 million the
governor had submitted. It was not the governor's problem,
most of the issue was about things the legislature had done
in 2017. He elaborated that $100 million of the total was
Medicaid, which the legislature had known was underfunded.
He continued that $24 million was AMHS, which had resulted
from shuffling between years that did not work out as
planned. There had been other uses of one-time money. He
recalled presenting to the committee in October [2017]
about the holes that had been left. He stated that the
holes had not been left by the governor but were a result
of legislative action. Community assistance and more had
not been funded. The bulk of the $170 million resulted from
holes left in the 2017 legislative process.
2:23:56 PM
Co-Chair Seaton shared that in 2017 the legislature had
received all reports as UGF and as GF to help get at some
of the one-time money or GF used to supplement UGF in order
to know what was spent in full. He noted that it did not
compensate for inaccurate projections and cuts or
underfunding statutorily required services. He stated that
if a cut was made to a statutorily required service, the
administration was required to follow statute and provide
the service, meaning it would come back for funding the
next year [as a supplemental]. The issues were things the
legislature needed to watch out for. He hoped the
legislature would look at all GF again in the current year
and make sure it was not using DGF to pay or make it appear
they were lowering the UGF deficit. He reasoned it was all
state money. The goal was transparency on what was paid
for. He was not claiming anything was perfect. He stated it
had been the way the budget had been created in 2017 - the
same thing for AMHS funds being used for Medicaid - it had
been allowed in the budgetary process but had not been
anticipated. He asked members to understand the impact of
the legislature's actions.
Representative Pruitt was fine with the total GF
conversation. He thought it was a challenge the way the
governor had presented the budget - he anticipated a focus
on UGF. He stated there was a lack of ability for
comparison - there were different numbers provided by
different individuals, which was challenging when talking
to the public about the total budget. He believed it was
important to decide what method to use as a baseline.
2:27:17 PM
Co-Chair Seaton clarified that there were categories of
funds available including DGF. When considering total
spending it was necessary to talk about total GF. He
explained that a person could focus on UGF, but he wanted
to avoid trying to lower UGF by spending DGF for unapproved
sources. The legislature could spend something outside of
its designated purpose, but it was problematic to use that
method to make it appear the legislature had spent less GF.
He did not intend to have a philosophical debate but wanted
to ensure that moving forward in the budget process the
legislature identified any holes.
Representative Wilson spoke to truth in budgeting and
transparency. She thought it would make more sense if they
did not have numerous designated funds. She thought it
would make more sense to take money from one pot in order
to understand the available revenue. She added it would
avoid the battle of funding things that were outside the
intended purpose of a specific fund.
Mr. Teal answered that Representative Wilson would have fit
in at the constitutional convention. He detailed that
constitutional drafters had intended for all revenue to go
into the GF and all appropriations to fight on equal ground
for funding. The whole purpose of prohibiting dedicated
funds, which had been avoided by the creation of designated
funds, was to keep from diverting funds to specific causes.
He continued that the thought was that items should fight
for funding with other programs. He agreed that it would be
easier to eliminate many of the designated funds. However,
every year, ideas for additional designated funds arose. He
stated there would not be designated funds unless they were
created by the legislature. The legislature could choose to
get rid of the designated funds, but they worked for the
purpose of ensuring that some programs were competing a bit
more equally than others for funding.
2:31:58 PM
Representative Wilson believed it was a discussion the
committee needed to have. She detailed that some of the
funds had been set up with specific parameters. She used
the Power Cost Equalization (PCE) fund as an example and
explained that some money was supposed to be put into
energy projects to help lower costs so at some point the
state would no longer need something like PCE. The idea was
to put communities on a more level playing field. She
stated there were numerous designated funds and she
believed it was necessary to consider whether they had met
their goals and whether they were needed at their current
levels. She thought it was important especially if the
legislature was going to consider a payroll tax or other
taxes. She stated that communities were not on the same
level playing field. She used the Higher Education Fund as
an example, where funding had been used for other purposes
such as retirement.
Vice-Chair Gara spoke to truth in budgeting. He discussed
that it was possible to make it appear that UGF spending
had decreased by funding education with a designated fund
(e.g. the Higher Education Fund). He recalled that one year
retirement had been funded partially with the Higher
Education Fund. He believed the public only cared about how
much was spent. He spoke against making one category
smaller by making another category bigger. He agreed that
they should look at GF and CBR spending, otherwise it was
confusing to the public. He tended to agree with Co-Chair
Seaton and Representative Wilson about the subject. He
added that without using all of the funds it was not
possible to compare year-over-year spending.
2:34:48 PM
Mr. Teal referenced page 16 from the LFD Overview book that
contained a discussion of designated funds being used for
non-designated purposes. He advised that a person could
begin there to start considering whether designated funds
were useful. He added that it helped to know the history on
some of the things. He used PCE as an example and detailed
that many urban communities received hydro projects, which
meant cheap electricity for urban locations. He considered
how rural residents could also benefit from the state's
large investment in energy when projects could not be built
in rural locations because it was not economically
feasible. Instead, the rural population shared in the hydro
investments by getting their energy subsidized. He stated
that one could argue the rural communities should receive
subsidization for as long as the hydro projects lasted,
which could be 100 years. An argument could be made that
the PCE had been a good idea that allowed the whole state
to benefit from investments that seemed to focus on urban
areas only. He stated that the legislature could go through
every fund to consider whether they were needed. However,
every fund had a constituency; it was not easy to unwind
history.
Representative Pruitt agreed that they did not want to
unwind history, but he did not like trying to lower UGF. He
recalled testimony by legislative staffer Pete Ecklund who
had argued the reason UGF was used was because it was the
place the deficit came from. He stated it was the driver to
lower what the UGF looked like because it changed where the
deficit was. He spoke to being truthful in budgeting and
the point highlighted by Mr. Teal about using designated
funds for non-designated items. The change would mean there
would appear to be an initial growth in the state's budget,
but he believed it would mean the legislature could finally
get to the truth of what was being spent. He referenced the
use of $40 million from designated funds to cover AMHS,
which now appeared as $40 million in growth in the current
budget. He asked if the legislature chose not to use
designated funds to pay for undesignated items, what the
growth in the budget would be. He wondered if it would be a
good position to start in the current year to reset the
clock and have a truthful conversation with the public.
2:38:23 PM
Mr. Teal stated it was a tough guess on the number, which
he estimated at several hundred million dollars. He
recalled that last year Co-Chair Seaton had stated they
needed to unwind some of the things, but he had determined
that it was not possible because then it appeared there
were huge budget increases. It was the nature of the
building that everybody was looking for reductions, not
increases. Trying to straighten things out was good in the
long run, great in concept, but it did not change the
amount being spent, just the accounting. He asked how the
legislature would figure out how to make the change while
making the public understand there had not been a budget
increase of a couple hundred million dollars. He questioned
how the public would understand that the budget had not
grown and that the accounting had merely been straightened
out.
Mr. Teal continued there were a number of things that could
be done. He shared that LFD had been talking about
designated funds not fulfilling their intent. Designated
funds had been intended to be more like program receipts,
such as AMHS money coming in from ticket sales that would
be used by AMHS. Park receipts designated for parks was
another example. He stated that those funding situations
were all fine; it was when the legislature began diverting
GF taxes for things like reinsurance, alcohol and drug
treatment, and other, that things became blurry. It was
possible to change the way the accounting was done, but it
would take work by chairs and agreement.
Mr. Teal referred to supplementals and believed one way to
reduce the distortion was to count supplementals in the
current year. He explained that in 2017 the legislature got
credit for reducing the budget, which it may have
intentionally or unintentionally underfunded. He elaborated
that if the legislature had to come back in the current
year and say it was not counting FY 18 appropriations and
was only counting by legislative session, the current
legislative session would spend the FY 19 budget and the FY
18 supplementals. Under the scenario, there would be no
advantage to under funding the budget. If the legislature
took credit for cutting the budget the previous year and it
had to increase it in the following year, what good would
it do the legislature to get the credit for cutting.
Mr. Teal relayed that the idea was not new; LFD had
produced reports like that six to eight years back and at
the time no one had really looked at them. At the time,
supplementals had been far less confusing than they were at
present. Supplementals had been around $50 million and LFD
thought they were causing distortion and had tried to
change the way it was reported, but it had not caught on.
2:42:45 PM
Co-Chair Seaton stated that although it did not solve the
supplemental dilemma, following all GF fixed the distortion
of DGF spent to lower UGF. The committee would be looking
at reports with both sets of numbers so people could follow
the total budgets and UGF.
Mr. Teal turned to slide 7 titled "Looking Ahead" and
discussed what the deficit meant beyond FY 19. The revenue
forecast kept pace with inflation and OMB's expenditure
plan was basically inflation. When both revenue and
expenditures were projected to grow at about the same pace,
projected deficits would continue unless action was taken.
He elaborated that the size of the deficit depended on
revenue: increased revenue would reduce the deficit,
reduced spending would reduce the deficit, and increased
spending would increase the deficit. The larger the POMV
payout, the lower the deficit. At the same time, the larger
the share of the funds that went to dividends, the smaller
the share that went to government, and larger the deficit.
Unless some fairly large action was taken, the outlook was
for continued deficits - after POMV - of $600 million to
$800 million per year.
2:44:57 PM
Mr. Teal turned to slide 8 and addressed what was missing
from the governor's budget. The item he had received the
most calls about was community assistance. People had seen
the appropriation for community assistance and asked for
verification they were covered. He answered, "not really,"
and elaborated that community assistance was designed to be
money that communities could count on. He reminded
committee members that boroughs and other local governments
were currently preparing their FY 19 budgets as well.
Theoretically, the communities knew the FY 19 distribution
would be $30 million. He recalled that the governor had not
requested a deposit the previous year and the legislature
did not add it. Unless money was added prior to June 30,
the payout would be $20 million in FY 19. The governor had
requested a supplemental, which would fund FY 19 at $30
million. He questioned how much the increment would help
local government at present. He believed communities were
happy to see the money included, but until it passed, they
could not be certain of the funding. He remarked that a
budget may not be passed until June again. He stressed that
communities could not plan unless they knew in advance what
was going into the community assistance program.
Mr. Teal continued that it was nice to catch up and know
what the FY 19 funding was, but it was the year the
governor had been expected to include a $30 million deposit
in FY 19, which meant the FY 20 allocation would also be
$30 million. He stated it was a question of planning. He
stated it was certainly nothing illegal, the governor had
used money from PCE earnings as outlined in statute. He
elaborated that the governor had put the money in FY 18
leaving no money for FY 19. In the opinion of LFD, that was
not how the structure was supposed to work. He reiterated
there was nothing illegal, just inefficient.
Mr. Teal addressed retirement contributions on slide 8. He
detailed that June 2016 valuations for retirement called
for state assistance payments of $299 million for Public
Employees' Retirement System (PERS) and Teachers'
Retirement System (TRS). The governor proposed
appropriations of $238 million, a shortage of $61 million.
He referenced Detroit, New Jersey, and Illinois and
explained that underfunding retirement could put states on
the brink of bankruptcy. He stated that it was perhaps not
quite as bad as the numbers made it look because the
legislature had included intent a couple of years back to
try to eliminate the three-year lag in setting rates. He
expounded that the Alaska Retirement Management Board
(ARMB) now had an updated projection model for life
expectancy and other variables and ARMB said the future
looked better and that they could reduce payments by about
$35 million. The other $25 million reduction was something
he had already talked about - anticipated savings in
Medicare costs (retiree medical costs).
Mr. Teal stated it was possible to argue whether the
funding was $61 million short, $25 million short, or short
at all. He looked at the valuation and explained that if
adequate funding was being allocated, the funding ratio
should be increasing. However, the funding ratio was
falling and was anticipated to fall for the next five to
six years before starting to increase. Retirement
contributions had been hanging in the background for two or
three years, but due to the overall fiscal situation they
had never risen to the forefront. He hoped the legislature
solved the fiscal situation in general and could turn its
attention to retirement systems. He discussed that $3
billion had been allocated to the retirement system in FY
15, which had reduced state assistance dramatically.
Projections for the current year were $300 million and were
increasing to $700 million or $800 million per year, which
was not something he thought the legislature would want to
happen. He stated that it may be underfunded, but he
believed more importantly, the legislature needed to take
time to really look at the retirement funding issue.
2:50:52 PM
Vice-Chair Gara referenced former Governor Sean Parnell's
proposal to take $2 billion to $3 billion out of the CBR
[for retirement]. He recalled at one point there had been a
promise that future retirement contributions would be about
$150 million per year. He understood that had changed, but
he wondered what had changed so drastically that the number
could increase to $800 million per year.
Mr. Teal replied that he believed the topic deserved the
legislature's attention to find out why the number was
increasing and what the legislature could do about it.
Mr. Teal addressed "What is New?" on slides 9 through 11.
He discussed the public safety action plan that would
increase spending by about $33 million, $18 million was a
proposed supplemental. He spoke to the economic recovery
plan. A payroll tax would generate $160 million in FY 19
and over its three-year lifespan it was supposed to bring
in about $800 million and spend about $800 million. He
found the change in the governor's attitude about the tax
interesting. He reminded the committee that when the
governor had proposed the tax it was because he believed
the deficit had to be filled. Whereas, now there was a tax
proposed that did nothing to fill the deficit. Every dollar
generated from the tax would be spent on capital projects.
He observed it was a very different philosophy than it had
been in the past. He added he had already mentioned the
impact on the capital budget if the tax did not pass.
Mr. Teal addressed other new things and highlighted the
appropriation from the CBR. He believed it was conceptually
a very interesting move. He elaborated that it was not
necessarily to use the CBR, the intention was to speed the
budget process. He explained it was done by saying there
was enough money from oil revenue and the POMV payout to
fund core services (i.e. schools and state agencies). The
idea was to fund those items on time or early, which would
avoid layoffs in school districts, state agencies, and
perhaps municipalities and accompanying inefficiencies. At
that point the minimally disruptive items including debt
service and retirement contributions. He did not believe
the governor was claiming the items were not important. He
believed the governor's philosophy was if the people were
funded first, their time would not be wasted talking about
the budget planning they needed to do and weather they had
jobs. He explained that the method would set items that did
not involve people up for a majority vote.
Mr. Teal thought the approach was interesting, but he saw
some dangers. Once debt service and retirement were funded
with the CBR supermajority vote, they were guaranteed
funding; however, the core services funded with GF would be
vulnerable to revenue failure. For example, the state had a
balanced budget, but ended up $200 million short on oil
revenue; it would mean the budget would be short on money
without authority to draw additional funds from the CBR. He
elaborated it may mean the legislature would have to come
back for a second supermajority vote, a round of budget
cuts (as occurred in most states), or with money from the
ERA. He reasoned if the legislature was going to pull money
from the ERA on a POMV basis, it should be sustainable and
not on an ad hoc basis. He believed the approach was
interesting, but that it needed a little help to make it
more workable.
Mr. Teal discussed the governor's proposal of biennial
budgeting (slide 10). He stated that theoretically biennial
budgeting was much more efficient and meant the legislature
would spend its time on the budget every other year,
leaving a year to focus on non-budget items. He met with
his counterparts in other states with biennial budgeting
and he did not see them having any gains; the states were
back in their off years doing the same thing they did in
their budget year. They spent their interims holding full
finance committee meetings scrubbing the budget. He opined
that advantages may be more theoretical than practical, but
the concept was worth discussing. He speculated the
legislature would receive legislation because the concept
required it.
2:58:00 PM
Mr. Teal turned to slide 11 and continued to address "What
is New?" He mentioned debt financing for purchases of oil
and gas tax credits, but he did not know any detail. He
moved on to supplemental appropriations. Supplemental
appropriations were included in the bill. He remarked that
in the past people wanted supplemental items out of the
operating budget because they wanted to start with a clean
bill. He stated there was no technical reason the
appropriations could not be included; any appropriation
could go in any bill - all the action required was a bill
title change to incorporate it.
Vice-Chair Gara was concerned that biennial budgeting
ignored the reality of inflation. For example, the
legislature had flat funded education in seven of the last
nine years. He mentioned that one year there had been a $40
million increase that had ultimately been removed.
Subsequently, $30 million had been added back over the next
two years. He surmised that [under biennial budgeting] in
the second year, it would be necessary to re-budget due to
inflation.
Co-Chair Seaton did not want to get too deep into the
subject until there a bill before the committee.
3:00:42 PM
Mr. Teal agreed that the issues were a reality with
biennial budgeting. The state's incremental budgeting
process meant that 95 percent or more of the budget was the
same every year. It would be possible to pass a budget for
several to five years, but it would be missing the
inflation component. He explained it was an easy thing to
take care of in the process - the legislature would simply
appropriate more for the second year. He agreed that until
the committee had a bill and the legislature talked to
other states using biennial budgeting, it was hard to
determine what the changes would be.
Mr. Teal explained that the presentation was an overview
only and it was not possible to talk about every detail. He
recommended reading the subcommittee narratives in the
written overview. He did not bring a model, but it was
available. There were some massive changes in the model in
terms of the revenue forecast and Permanent Fund earnings.
He encouraged members to meet with LFD to review the model
if they desired.
^PRESENTATION: PERSONAL SERVICES VACANCY FACTOR
3:03:11 PM
AMANDA RYDER, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION,
provided a PowerPoint presentation titled "Vacancy Factors
and Personal Services Costs" dated January 23, 2018 (copy
on file). She began on slide 2 and addressed the goal of
the presentation. She stated the committee had asked LFD to
provide information on personal services costs,
particularly the practice of underfunding positions to
account for turnover. The presentation would also address
how to find information on vacant positions, how to
determine what funding was available for positions, and how
deleting the wrong fund source may impact departments and
their ability to perform their duties.
3:05:44 PM
Ms. Ryder moved to slide 3 and defined vacancy factor. She
explained that a vacancy factor was the difference between
the amount needed to fully fund all positions in a budget
and the amount of personal services funding included in the
budget.
Mr. Teal elaborated on slide 3. He pointed to an equation
showing budgeted funding, which equaled the cost of filling
all positions minus the vacancy factor. He noted the
committee was familiar with OMB position detail reports
that listed each position and the cost of filling that
position. He remarked that Ms. Ryder would address two
factors that cause an agency to have less money than the
budget implied - the vacancy factor and another more
complicated source. He continued that the budgeted funding
equaled the cost of filling all positions minus the vacancy
factor. He believed the equation made it clearer that the
amount listed for each position in the personal services
detail was not the amount the agency received. The amount
the agency actually received was listed in the personal
services detail minus the vacancy factor. He believed many
people mistakenly saw a dollar amount associated with a
position and thought that it was the amount the agency
received. Therefore, he believed it helped others to
restate the definition (the first equation on the slide).
The second equation emphasized that the budget purposefully
underfunded positions.
Ms. Ryder addressed why the budget purposefully underfunded
positions. She detailed it was based on the assumption that
newer vacated positions took time to fill. She explained
that if positions were fully funded, they would be
overfunding what an agency needed. She stated that it
depended on the size of an agency. For example, if an
agency had three employees, it probably needed 100 percent
of its funding, whereas, an agency with 600 employees
probably did not - it was unlikely to have all 600
positions filled at any one time.
3:08:45 PM
Ms. Ryder addressed who determined the appropriate vacancy
factor (slide 4). She explained that OMB provided the
minimum and maximum vacancy factor guidelines. Generally,
the higher number of full-time positions equated to a
higher vacancy factor. She underscored that the table on
slide 4 showed guidelines only - the figures were not set
in stone.
Ms. Ryder turned to slide 5 titled "FY 19 Executive Branch
Personal Services Line Funding Summary (All Funds)." The
slide provided a graphical illustration of the vacancy
factor. She elaborated that OMB had sent over information
on executive branch agencies - the numbers were not
statewide and excluded the University, the legislature, and
Judiciary. To fully fund all 16,228 positions represented
in the graph would cost $1.83 billion; however, the
governor's budget request included $1.745 billion. The
positions were underfunded in the FY 19 budget by $90
million, which was the equivalent of about 796 unfunded
positions. She emphasized that of the $1.745 billion, about
half came from non-UGF funding sources. All personal
services funding was based on the fact that it was possible
to collect 100 percent of everything budgeted. With non-UGF
funding sources, it was rarely the case that 100 percent of
the budgeted funding was collected.
3:10:40 PM
Vice-Chair Gara asked Ms. Ryder to repeat her prior
statements.
Ms. Ryder complied. She explained that the personal
services line item was based on receiving 100 percent of
the funding that was budgeted for the position. She
detailed that about half of the positions in the state were
budgeted with non-UGF fund sources. She elaborated that UGF
was counted as available for appropriation. She added it
had been the case to date and should be into the future.
However, non-UGF funding sources (i.e. program receipts,
other funds, and federal funds) and many times there was
more authorization in the budget than there was the ability
to collect 100 percent of the funding. She intended to
provide an example in several slides that would show issues
that arose with the other fund sources.
Ms. Ryder addressed how to find vacancy factors for
individual divisions on slide 6. She pointed to a table at
the bottom of the chart showing an example of personal
services expenditure detail for the Department of Health
and Social Services (DHSS) from OMB. She intended to
highlight two things on the slide. The first was the
vacancy factor - to determine how much a division was short
funded. She directed attention to an arrow to the right
[shown in red] pointing to a total pre-vacancy amount of
$50,890,464, which was the amount needed to fund all 598
positions in the Division of Pioneer Homes at 100 percent.
The table indicated the division was short funded by
$739,064, equating to approximately seven to eight
positions the division would have to keep vacant to live
within its budget; it was the vacancy adjustment of 1.45
percent.
Ms. Ryder addressed the total post-vacancy - the funding
actually included in the division's budget - was
$50,151,400. Some other agencies may have lump sum payments
and premium pay - costs not associated with specific
positions. The bottom line in the table (slide 6) was the
total amount allocated for personal services costs within a
given allocation. She highlighted funding sources used
(shown on the left side of the table), which were important
when looking at the amount available for personal services
costs. The Division of Pioneer Homes had multiple funding
sources. She pointed to the pre-vacancy cost of funding 100
percent of positions and the post-vacancy of $50,151,400,
which was the amount appropriated for personal services
costs in the division's budget. The slide detailed the
percentage of each of the funding sources appropriated or
requested for personal services costs.
3:14:51 PM
Ms. Ryder continued to address the lower left portion of
the table on slide 6. The problem with the funding sources
was that many of them were not 100 percent collectible. She
detailed that if 100 percent of all of the fund sources
were collected, the division would have $50 million to pay
its positions, but even then, the division would be
underfunded by $739,064.
Ms. Ryder discussed that LFD had heard rumors over the
years there were $300 million to $400 million in slush
funds available in the budget (slide 7). One of the issues
from uncollectible fund sources was the perpetuation of the
myth. She furthered that LFD did not know how the number
had been derived and could not duplicate it, but if true,
it would mean about 14 percent of total personal services
funding would be diverted for other purposes.
Ms. Ryder moved to a pie chart illustrating the Pioneer
Homes FY 17 total funding cost on slide 8. She detailed
that 54 percent was UGF, which was collectible. She
explained that GF program receipt authority in the Pioneer
Homes was received from residents paying fees for room and
board and other incidentals. Interagency receipts were
primarily from Medicaid billing for Medicaid recipients who
live in the Pioneer Homes. Statutory designated program
receipts were received from pharmaceutical sales. Federal
receipts of $694,600 were for the Palmer Veterans Home
received from per diem payments paid by the federal
Veterans Administration. She addressed whether the funding
was collectible. Based on an analysis between the FY 17
authorized budget and the actuals, about 20 percent of the
money was uncollectible.
3:17:26 PM
Ms. Ryder turned to a chart on slide 9 titled "Pioneer
Homes FY 17 Authorized Budget vs. Actual Expenditures - All
Fund Sources." She reported that in FY 17, Pioneer Homes
had to transfer $171,000 UGF from other allocations in
order to address the funding shortfall. She elaborated that
$1.6 million (9.2 percent) of the authorized spending was
not collected or expended. She furthered that there had
been $2.9 million in interagency receipts, but the division
had not been able to bill for Medicaid like it had wanted.
Additionally, 28 percent of the $3 million comprised of
statutory designated program receipts had not been
collected. In total, $5.3 million of non-UGF fund sources
were not collected (approximately 19 percent of the
division's budget).
Ms. Ryder advanced to slide 10 titled "The Impact of
Unrealized Funding Sources on Vacancy." She explained it
was an illustration of how the uncollectible fund sources
could really impact a division's ability to hire positions.
She reported that 81 percent of the Pioneer Home's budget
was in personal services. She pointed to the first column
"Pre-Vacancy" in a table on slide 10 totaling $50.8
million, which reflected the total cost of filling all
positions. The third column showed post-vacancy funding,
which was the amount actually requested in the budget. She
noted that a vacancy factor of 1.45 percent had been
applied to the pre-vacancy number and each of the fund
sources listed in the table were reduced to get to the
post-vacancy money.
Ms. Ryder reported that Pioneer Homes had raised rates by
15 percent over the past few years to increase GF program
receipts and had a big push to get all residents eligible
for Medicaid on Medicaid. She reasoned it was not likely
the division would receive another couple million dollars
in Medicaid receipts. She did not see many changes in
Pioneer Homes to make her believe the division could
significantly increase other revenue sources. Therefore,
LFD had plugged the received amount into the FY 19 request,
which it believed was a reasonable amount. At the 1.45
percent vacancy factor, it would be necessary to keep 102
vacant months per year or eight positions.
Ms. Ryder stated that in reality, LFD believed the vacancy
factor was closer to 8 percent per year, meaning it would
be necessary to keep 47 positions vacant and 567 vacant
months to live within the budget unless the division
transferred money from other line items. She stated that
this is what LFD would consider to be a more realistic
vacancy factor. She explained that if the legislature
decided to cut $4.1 million out of the division's budget
because it could not collect the funds, there would be a
much more significant impact on Pioneer Home's budget - it
would have to reduce another 47 positions if the funds were
cut from UGF instead of the appropriate funding sources.
3:21:39 PM
Co-Chair Seaton asked for verification that reducing the
UGF fund source increased the percentage theoretically
coming from other sources.
Ms. Ryder replied that the federal government would only
pay the per diem rate they were going to pay for veterans
in the Pioneer Homes; it was not possible to get additional
federal receipts unless additional veterans moved into the
home. If UGF funds were cut, it meant cutting services to
residents; it was not possible to merely increase federal
receipts. The same went for other fund sources - unless
revenue, the number of paying residents, and/or the rates
were increased, or the state somehow was able to collect
more Medicaid, cuts to UGF would cut services. She
explained that UGF was the only real money the division was
able to receive because there was significant excess
authorization in the division's budget at present.
Mr. Teal returned to slide 9 and explained that the total
$5 million that was not collected could not be a slush fund
diverted to other purposes. He detailed it was money that
had not materialized; therefore, it could not be spent. He
elaborated that it was sometimes referred to as hollow
authority or uncollectible receipts; it was not real. He
spoke about the uncollectible amount and noted that 59
percent of interagency receipts would be realized; of the
$4.8 million in the budget, about $2 million was available.
He continued that adding all of the unrealized receipts
resulted in another $3.4 million (slide 10), which was
additional forced vacancy (last column on the right),
making the total vacancy $4 million in the budget that
could not be spent.
Co-Chair Seaton recognized Representative Justin Parish in
the audience.
3:24:53 PM
Vice-Chair Gara asked about slide 10. He understood the
$739,000 vacancy factor. He asked if the $4.1 million that
was unrealized meant the agency had to make internal cuts
it did not plan on making.
Ms. Ryder replied that since FY 15 UGF had been reduced by
$3.4 million in Pioneer Homes, DGF had been increased by $2
million, and other funds had increased by $1.6 million. She
explained that looking at total funds appeared that nothing
had happened in the budget and initiated the question of
why Pioneer Homes would have increased waiting lists over
the past few years, and why they were unable to hire
positions. She explained the budget was actually about
$400,000 higher since FY 15; it was due to the fund
sources. She elaborated it was one of the difficult aspects
of using GF. She furthered that if she looked at GF she did
not see a fund source change to collect more from the
residents and provide less state subsidy. She stressed it
was difficult to see what was happening in the budget when
looking at all GF. It was much easier to see what was
happening when looking at UGF. She added that in some other
agencies it was best to look at all GF; therefore, it was
crucial to know what comparisons to make. She emphasized
that all comparisons were not equal. In Pioneer Homes, the
best comparison was UGF to see what impacted its ability to
hire positions.
3:27:07 PM
Co-Chair Seaton stated there was $50,151,000 million of
funded positions, but 10 percent of the funds were non-UGF
and non-collectible. He surmised the Division of Pioneer
Homes really only had $45 million to operate on in order to
run a $50 million budget. He surmised the division was
leaving positions vacant because it was the only way to run
the $50 million budget with $45 million.
Ms. Ryder replied "yes, for the most part, except a lot of
the non-UGF fund sources are available, they're just not
available to the degree that is included in the budget."
She explained it was the reason LFD had done the projected
available funding based on FY 17. She had not spoken to the
department about the situation and perhaps they were
planning to increase their rates - she did not know. The
legislature would not know until it asked departments if
they were planning to expand their ability to collect non-
UGF fund sources. She believed the example was probably a
fairly good estimate of what they could collect.
Ms. Ryder believed the Division of Pioneer Homes probably
needed to clean up its budget because there were some real
disadvantages to the division of presenting its budget the
way they did. One of the disadvantages was when salary
adjustments and health insurance increases occurred, it was
calculated on the fund sources used to pay personal
services. When she had calculated FY 18 and FY 19, there
was $582,000 of health insurance increases incorporated
into the division's budget. She clarified it did not
include additional services, only additional cost to pay
increased health premiums for employees. She underscored
that $220,000 of the increased cost was not UGF - it was
hollow authorization, meaning a couple of positions would
need to be cut because it would be necessary to use UGF.
She did not believe the division would have the ability to
collect enough from the $4 million to pay for the extra
$220,000 in the division's budget in FY 18 and FY 19 for
health insurance. She recommended cleaning up the fund
sources to get more UGF, which was a more accurate
representation of the funding needed to fund the division's
personal services.
3:30:35 PM
Co-Chair Seaton pointed to the fourth column in the table
on slide 10 titled "Realized Revenue/Budgeted Funding Based
on FY 17." He surmised that to achieve accurate projections
and avoid underfunding the budget with uncollectible funds,
the percentages in the column should be adjusted to 100
percent and the projected amount received should be reduced
to true up what a division could actually collect from the
total fund sources.
Ms. Ryder answered that she recommended trying to clean up
some of the excess in hollow authorization in the
division's budget. She highlighted the takeaway from the
graph on slide 10. She explained that when a division had
non-UGF fund sources, the true vacancy factor could be much
higher than what appeared in the budget and funding that
did not exist could not be spent. She advised to be very
careful when decrementing funding in allocations with
multiple fund sources. She would address another report
shortly that showed when looking at Pioneer Homes
positions, each position was allocated to about 60 percent
UGF. She elaborated that if a position was being cut,
someone may reason they could cut UGF. She countered that
the division had spent all of its UGF, it was the other
funding sources that were the problem; therefore, if UGF
was cut with an associated position, it would require the
division to cut even more positions. She recommended
looking at positions as a pot of money and to understand
the impacts of cutting UGF or any other fund source; it was
also important to understand that when the legislature
added $3 million in DGF and other funds and reduced UGF,
the division had not been able to collect the funds. She
clarified that if UGF was cut and other fund sources were
added, it would mean additional positions would need to be
cut. She advised the legislature to look at the total
funding and funding sources when looking at any position
information.
Representative Wilson referenced the governor's executive
office and vacancy. She stated that in 2017 the office had
a vacancy rate of 4.6 percent.
Co-Chair Seaton asked if Representative Wilson was looking
at the presentation.
Representative Wilson replied that she was not looking at
the presentation, she was looking at a budget book [the
information was not included in members' packets]. The data
showed approximately $433,000 as the vacancy rate for the
last year. For the current year, the office had 69 people
instead of 66 people and the vacancy rate had been reduced
to 0.74 percent or $68,073. She asked if it meant the
office could spend more money because the vacancy rate had
decreased. She stated the funding was all UGF and all
realized. She wondered if the reduction in the vacancy rate
would enable the office to spend more money, but on paper
it would look the same.
Ms. Ryder replied that she would have to look to determine
if a vacant position had been deleted from the prior year.
Representative Wilson replied that positions had been
increased from 66 to 69. She stated it was a substantial
difference between $433,000 the office could not use
because it had to cover the vacancy rate and $68,000. She
reiterated that the funds were all UGF and all realized.
She wondered about the takeaway.
Ms. Ryder answered that she would first ask whether funding
had increased. She did not know - she was not familiar with
the particular budget or allocation. She recommended asking
the department for an explanation of the difference in
vacancy rate.
3:35:52 PM
Representative Wilson spoke to trying to clean up hollow
receipts such as federal authorization. She asked if they
also looked at GF match attached to the hollow receipts.
Alternatively, she asked if the federal receipt funding
would be removed but the GF would remain the same. She
asked if a department may not ask for more GF because the
federal funds may not come.
Ms. Ryder responded that she would look at whether the GF
match was spent. She detailed that if the GF match had been
expended and they had hollow authorization, she would know
the division needed the funding in the budget. Removing
hollow authorization should not impact the amount of GF
match needed.
Co-Chair Seaton asked members to try to keep examples to
the slides in the presentation.
Ms. Ryder moved to slide 13 and addressed an OMB personal
services report showing filled versus vacant positions for
Alaska Pioneer Homes. The report showed how many of the
prior 12 months the budgeted positions had been vacant. She
advised members to talk to the department about the reasons
the positions were vacant.
3:37:41 PM
Mr. Teal provided background on the report referenced on
slide 13. He recognized that vacancy position counts and
personal services funding was a long-term, widespread
problem that had frustrated LFD, OMB, legislators, and
staff. The problem was particularly frustrating to LFD and
OMB because they were unable to explain the issue in terms
that the legislature and the public could understand. He
elaborated it had been difficult to come up with a way to
explain it was not just vacancy factors that mattered -
when a position was filled, and fund sources also mattered.
He explained that when a division had eight unfilled
positions it did not typically mean the division had eight
empty positions. He relayed that LFD had met with OMB
during the interim to try to find a better way to present
the information. He detailed that OMB had developed the
report shown on slide 13, which LFD was very happy with.
The report included boxes specifying whether a person had
received a paycheck (in other words, whether a position was
filled).
Mr. Teal explained that if a division's vacancy factor was
$739,000, which equated to eight positions, the division
did not have eight positions vacant, it had a couple of
months vacant for various positions here and there that
when added up was the equivalent of eight full-time
positions. He expounded it was difficult to delete one
position, because it was not one position that was vacant -
it involved numerous positions with turnover. The report
made it obvious that it was important to think about
vacancy in terms of months of empty positions rather than
positions that were filled.
Mr. Teal continued that the report also showed vacant
positions, which provided the legislature with an
opportunity to ask the department why the position was
vacant and what the agency's intentions were. He reasoned a
vacant position may be one an agency intended to transfer
to Shared Services or perhaps the agency was having
recruitment difficulties - it could be a number of things.
The report was helpful, but it did not provide all of the
needed information. He stressed it was critical to
understand the fund sources as well as the vacancy factor.
Information about what kind of funding was used to pay for
positions was on the next slide.
3:41:25 PM
Vice-Chair Gara referenced slide 10. He stated that the
Pioneer Home had received $4.1 million less than he
thought. He observed that many of the fund sources had not
come through (except for GF). He asked if the situation had
occurred in the prior year as well. He wondered if it had
been a static $46.8 million the agency had been receiving.
Alternatively, he wondered if he should assume it was $4
million worse than the prior year.
Ms. Ryder answered that LFD had looked at FY 17 actuals
compared to the FY 17 budget and had applied the ratio of
what an agency was able to collect to the FY 19 budget. She
explained that LFD did not know if the amount was what the
agency would actually receive in FY 19, but based on her
knowledge of the Pioneer Homes budget, she believed the
estimate was reasonable. She furthered that the division's
budget looked very different than it had in FY 15 when it
had $3 million more in UGF and less in other fund sources.
There had been a push in Pioneer Homes to find other
revenue sources like there had been in many other
departments. The impact had been that the division had to
maintain a higher vacancy.
Mr. Teal referenced Vice-Chair Gara's statement about there
being $4 million less than he thought the Division of
Pioneer Homes had. He explained the division had known
about $739,000 of the amount. The uncollectible receipts
had caused the division to have an additional $3.4 million.
The total was $4.1 million, it was not new. Uncollectible
receipts added a vacancy factor that was not necessarily
visible until the fund sources were reviewed. He noted the
information [on slide 10] was based on FY 17 actuals. He
reasoned that FY 18 and FY 19 would have about the same
fund sources in about the same amounts. He stated if they
were different, the analysis would need to be adjusted. He
noted that as Ms. Ryder had testified, the changes occurred
in FY 15 and there had not been changes since FY 17.
3:44:46 PM
Co-Chair Seaton stated there was a tremendous disadvantage
to having a budget with uncollectible receipts. He added
there had been requests numerous times for additional
federal receipt authority. He asked if there was any
advantage to an agency to have the hollow authority.
Ms. Ryder replied that there were some advantages. For
example, if pharmaceutical sales increased, the division
would have the ability to spend the money it had and would
not have to go to Legislative Budget and Audit for a
request. She explained that it reduced administrative costs
of trying to request additional funding. She relayed it was
not a bad thing to have some additional authority, the
problem was that too much additional authority skewed the
budget. Some additional authority could promote
administrative efficiencies because the division did not
have to ask for additional funding if it had another paying
resident, but the division could not spend any more money.
She continued there could be cases where a resident was
willing to pay and the division thought it could hire
another person because a bed was open and the division had
the receipt authority There was an advantage, but the
division would still have a vacant bed if it could not
collect the funds. Whereas, if the division could collect
the funds, it could fill beds. She concluded there was an
advantage, but the large discrepancies were problematic.
Co-Chair Seaton surmised that a differential between the
vacancy factor, meaning a division had to leave positions
open, may mean it was not hiring nurses and could not fill
beds because it did not have personnel to service them.
Mr. Teal agreed, but wanted to take a step back. He
reminded committee members that with federal receipts, a
division could go to Legislative Budget and Audit (LB&A).
However, he questioned why an agency would cut federal
receipts back at 98 percent [slide 10, fourth column
pertaining to realized revenue/budgeted funding]; he stated
it would be inefficient for an agency to have to go to LB&A
annually and it did not involve a substantial amount of
money. He furthered that an agency could go to LB&A to get
more statutory designated program receipts if needed and
interagency receipts could be unbudgeted if needed. The
real problem was GF program receipts.
Mr. Teal explained it was not necessary for an agency to
have 98 or 100 percent in each of the columns, but it was a
problem for interagency receipts to be budgeted at $2
million more than an agency could collect. He stated that
even program receipts at $1 million more than an agency
could collect was distorting. He did not know that it was
misleading the legislature into thinking Pioneer Homes had
more than it did. He thought most people would look at the
budget and think that it was $50 million; most people would
not understand it was really $46 million. He continued that
most people would not understand why a new resident could
not be admitted if the Pioneer Home had empty beds.
Mr. Teal continued that a person could not get in because
program receipts did not cover the full cost of the room
and the division did not have any GF; it could not fill the
bed even though the division had the program receipt
authority and a person was willing to pay to be admitted.
He continued that it still may be that if a person was
paying $50,000 and it required a GF subsidy of $10,000 or
$15,000, the division could not admit the person because
they did not have the GF match. The big disadvantage
involved the healthcare cost. He explained that if he were
managing the division he would significantly cut program
receipt and interagency receipt authority because having
them on the books cost the division one to two positions
just because it was carrying hollow receipts. The division
was hit with charges to health insurance from program
receipts that it was not going to collect and had to pay
with GF. He concluded it was a bad thing for the agency to
do and misleading for the legislature and others.
3:50:30 PM
Ms. Ryder referred back to the slush fund myth of $300
million to $400 million [slide 7]. She provided a scenario
where a budget subcommittee decided it was going to clean
up the books in the current year and removed 100 percent of
the uncollectible money with a reduction to Pioneer Homes
of $3.4 million. She stated that the next year, in the
management plan, the department would probably come in and
determine it would eliminate around 39 of the 47 unfunded
positions that had been unfunded due to uncollectible
receipts. She believed the following year people would ask
why the UGF funding associated with the 39 positions had
not been cut. She explained that the UGF funding had not
been paying for the 47 positions - nothing had been paying
for the positions. She furthered that if the legislature
cut the UGF associated with the 39 vacant positions that
could not be funded because currently the division had more
than 500 vacant months, the division would end up with many
more vacant positions. She elaborated it was necessary to
look at the money as a pot funding the full myriad
positions; it was not possible to tie each individual
position to position.
Ms. Ryder explained that to find how much money was
allocated, it was necessary to go to the personal services
detail report [shown on slide 13]. The report was included
in members' subcommittee books. She turned to a detailed
report showing the governor's operating budget allocation
totals on slide 15. She pointed to column 5 and explained
that $50 million of the Pioneer Homes' budget of $61
million was spent on personal services. She observed that
many people were paid by the division's budget. The first
column showed FY 17 actual expenditures, which she compared
to the governor's request. The FY 17 actuals was $5.6
million higher than the governor's request. She stated it
was not possible to cut back to FY 17 and not impact
Pioneer Homes. She stated that Pioneer Homes was $699,200
UGF [$599,200 UGF shown on slide 15] below what was
expended in FY 17 (1.8 percent below the FY 17 actuals).
The other numbers gave a strong indication that there may
be hollow authorization. In the case of Pioneer Homes, she
knew there was hollow authorization, but when looking at
the information for other divisions she would indicate "may
be" hollow authorization. She would then look at the
individual fund sources.
Ms. Ryder reported that she sometimes ignored the vacancy
factor and considered the pot of money a division had to
spend on operations. She pointed out that the division's
budget was actually below FY 17 UGF and much of the other
money was hollow. The division was $600 million [thousand]
below and had almost $600,000 of additional healthcare
costs in the FY 19 budget. She explained that when looking
across the board, the division had $1.2 million UGF less to
spend in FY 19 compared to FY 17 - she believed it would be
approximately 12 positions fewer.
3:55:11 PM
Mr. Teal stated that the $5.6 million increase over FY 17
actuals was not UGF; it was money that did not exist or
hollow authorization (slide 15). He explained that the
legislature and the department would probably be better off
if the hollow authorization was removed.
Co-Chair Seaton remarked that subcommittees would have
substantial work to do.
Vice-Chair Gara referenced slide 10. He considered the
$51.151 million the Pioneer Homes needed to produce a given
level of services after the vacancy factor. He stated that
the division hoped it would receive numerous funds sources,
which it had ultimately not received - equating to $3.3
million. Ultimately, the division had only been able to
provide $46 million in services. He thought the $50.151
million was the level of services (for housing, food, care,
and other) the division wanted to provide. He stated there
would be an argument over actuals and that the division's
proposed budget was higher than its actuals (actuals had
been lower because the division did not collect funds it
had hoped to collect). He asked for verification that the
division would itemize the level of services it could
provide under the $50.151 million.
3:58:09 PM
Mr. Teal pointed to slide 15 and pointed out that $50
million had not been provided. He noted that slide 10 only
considered personal services. Slide 15 showed that personal
services were closer to the $46 million. The division may
want to provide $50 million, but it was funded at $46
million. He clarified the division was budgeted at $50
million but funded at $46 million. If the legislature
wanted the agency to provide $50 million in services it
could allocate another $3.5 million GF or make sure the
other uncollectible fund sources (i.e. Medicaid or program
receipts) got collected, which was more difficult to do. He
concluded there were always several places in a budget to
get to reach the desired goal, which made budgeting tough.
Ms. Ryder addressed slide 14: "So how am I supposed to find
out what kind of money is used to pay for positions?" She
recommended looking at allocation totals, then personal
services detail to consider whether it was reasonable the
positions were actually collectible, and then talking to
LFD analysts and department staff. She referenced
Representative Wilson's earlier question about the
governor's office and relayed it was a good place to start.
4:00:21 PM
Mr. Teal acknowledged the approach under discussion took
significant time and effort, but it would be a much more
productive effort than merely asking the department for a
list of vacant positions and then deleting the positions
and associated funding. He turned it over to Ms. Ryder to
address words of caution on the simple approach.
Ms. Ryder addressed words of caution on slide 16. She
relayed that lists of vacant positions were a point in
time. The legislature did not know whether the executive
branch planned to fill the positions and if the legislature
deleted the positions it may be deleting services it wanted
the departments to provide. Second, it may take time to
recruit the right individuals for a position. For example,
she had been the director of Administrative Services for
the Department of Commerce, Community and Economic
Development in the past. She recalled that after the
banking failure in 2009, Division of Banking and Securities
had lost about 50 percent of its staff because the
positions had been federally funded. She explained it had
taken time to recruit additional banking examiners, but if
the legislature had deleted the positions, the department
had taken the position funding and had contracted out for
the services. She continued that if the funding associated
with the positions had been deleted, the division would no
longer have been able to contract out. She noted that the
Department of Transportation and Public Facilities did the
same type of thing with engineers - the field was highly
specialized and while recruiting for a position it may
contract out for the services with a private engineering
firm. She cautioned against deleting funding when seeing a
vacant position. She added that there was insufficient
funding to pay for all of the vacant positions. She
highlighted the Pioneer Homes as an example - deleting GF
would create larger vacancies. She advised members to look
at the total pot of funding when multiple fund sources were
available to determine whether a deletion or addition made
sense. She reminded the committee that positions may be
vacant because they were funded with uncollectible fund
sources.
4:02:57 PM
Mr. Teal provided wrap up on slide 17. He was not intending
to tell the committee to stay away from addressing personal
service costs, but to become well versed in the subject. He
believed legislators could do that by keeping the points
listed on the slide in mind:
• Avoid assumptions
• Use available resources
• Understand impacts
• Don't go down the position rabbit hole
• Available Funding = Cost of Filling All Positions -
Vacancy Factor - Non-Existent Funding
4:04:00 PM
Ms. Ryder advised against making assumptions, particularly
that cutting UGF associated with a vacant position would
not have any impacts. She recommended using available
resources (reports and people including the departments and
LFD) and understanding the impacts. She cautioned against
going down the position rabbit hole; if the agency did not
have the funding to keep a position, keeping it on the
books did not cost anything, but deleting the position
actually may cost. She explained that recreating positions
took time and could mean spending more money because of
paying more to contract the work out. She stated that
cutting positions to the bone may increase costs. She
reminded the committee that money appearing in position
detail reports was not necessarily real money.
HB 285 was HEARD and HELD in committee for further
consideration.
HB 286 was HEARD and HELD in committee for further
consideration.
Co-Chair Seaton thanked the presenters for the information.
ADJOURNMENT
4:05:35 PM
The meeting was adjourned at 4:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 1-23-18 HFC FY9 Overview.pdf |
HFIN 1/23/2018 1:30:00 PM |
HFIN LFD Budget Overview |
| 1-23-18 HFC Vacancy Factor Training.pdf |
HFIN 1/23/2018 1:30:00 PM |
HFIN - LFD Vacancy Factor |