Legislature(2019 - 2020)Anch LIO Lg Conf Rm
04/22/2020 10:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Updated Fiscal Outlook and Direct Federal Assistance | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
ANCHORAGE LIO
April 22, 2020
10:01 a.m.
10:01:08 AM
[Note: meeting took place in the Anchorage LIO and was
recorded from Juneau.]
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 10:01 a.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Jennifer Johnston, Co-Chair
Representative Dan Ortiz, Vice-Chair (via teleconference)
Representative Ben Carpenter (via teleconference)
Representative Andy Josephson (via teleconference)
Representative Bart LeBon (via teleconference)
Representative Kelly Merrick (via teleconference)
Representative Colleen Sullivan-Leonard(via teleconference)
Representative Cathy Tilton (via teleconference)
Representative Adam Wool (via teleconference)
Representative Gary Knopp (via teleconference)
MEMBERS ABSENT
None
ALSO PRESENT
Representative Matt Claman; Senator Donald Olson.
PRESENT VIA TELECONFERENCE
Speaker Bryce Edgmon; Pat Pitney, Director, Legislative
Finance Division; Alexei Painter, Analyst, Legislative
Finance Division.
SUMMARY
UPDATED FISCAL OUTLOOK AND DIRECT FEDERAL ASSISTANCE
Co-Chair Foster reviewed the agenda for the meeting. He
asked Co-Chair Johnston if the Office of Management and
Budget (OMB) would be providing an update.
Co-Chair Johnston indicated that the committee would be
hearing from the Legislative Finance Division (LFD) and
Legislative Legal Services first.
Co-Chair Foster asked members to hold their questions until
the end of the presentation.
^UPDATED FISCAL OUTLOOK AND DIRECT FEDERAL ASSISTANCE
10:04:14 AM
PAT PITNEY, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
introduced herself.
ALEXEI PAINTER, ANALYST, LEGISLATIVE FINANCE DIVISION,
introduced himself.
Co-Chair Foster asked where the public could find the
presentation. Ms. Pitney replied that it was on the
legislative website at the link to the House Finance
meeting in the documents section.
Ms. Pitney began the PowerPoint Presentation: "State of
Alaska Update on Fiscal Outlook," on slide 2. She reviewed
the outline which included looking at the Spring Revenue
Forecast, an updated fiscal summary, and any outstanding
items that might arise. The presentation would also cover
an outlook for FY 22, a longer-term outlook, and federal
funding associated with the CARES Act. She would also
discuss the revised program legislative (RPL) process at
the end of the presentation. She would provide a short
summary, as LFD had not had the opportunity to conduct an
analysis on the topic.
Ms. Pitney turned to slide 3 to discuss the Spring Revenue
Forecast. The spring forecast was received on April 6,
2020. It assumed an FY 20 average price per barrel of
$51.65 down from $63.00 forecasted in the prior fall. The
price estimate for FY 21 was $37.00 per barrel. There were
only minimal changes to the production forecast. She
relayed that the spring forecast used the Permanent Fund's
low scenario at the time, which was an ending balance of
$63 billion down from $66 billion in the previous year. She
noted there were a few non-petroleum forecast updates.
However, they were minor and not due to the quickly
changing situation.
Ms. Pitney continued to slide 4 which showed the price
comparison between the fall and spring forecasts. She
reported that the price estimate of oil was forecasted to
go down by $20 per barrel in FY 22. However, production was
down by only 4000 barrels versus 2000 barrels. The
Legislative Finance Division believed that both the price
estimates and the production estimates might be very
optimistic, especially since the occurrence of events over
the previous couple of days. She would address the issue in
more detail shortly.
10:08:21 AM
Ms. Pitney turned to slide 5 which showed a comparison of
revenues from fall to spring. She highlighted the third
line, petroleum revenue, which was down $693 million in
FY 21. Projected petroleum revenues were $600 million in
FY 22. She explained that non-petroleum revenues were down
in FY 21 by $120 million, and in FY 22 they were down by
$90 million. The next category, percent of market value
(POMV), was stable because it was using a lagging 5-year
average of the Permanent Fund (PF) value. The state
anticipated a reduction in the POMV revenue of $47 million
in FY 22 and $98 million in FY 23. She suggested that if
there was only one market reduction, it would equate to
$300 million, as it would phase on over time. She
highlighted the total revenue difference of $814.7 million
which was less than anticipated in FY 21. In FY 22 the
difference was $741 million.
Ms. Pitney turned to slide 6: "Fall to Spring Forecast
Comparison," showing a graph. She indicated that the red
line represented the fall forecast and the yellow line
represented the spring forecast. She highlighted that the
current projected revenue and the out year projected
revenue had dropped significantly. She reported that the
state's expenses for FY 20 totaled $5.8 billion in
unrestricted general funds (UGF) and the FY 21 budget was
forecasted at $5.15 billion. She thought capital
expenditures and supplemental expenditures could be greater
in FY 21. The state's cost structure was above both the red
and yellow lines. She anticipated a decrease in revenue in
the amount of $815 million in FY 21, and an annual decrease
of between $650 million - $750 million in revenue in the
out years.
10:12:14 AM
Ms. Pitney continued to slide 7: "FY 12 FY 22 Revenue
Collapse," which showed the revenue picture of the previous
10 years. In FY 12 the state brought in approximately $9.5
billion in traditional revenue. She noted that the blue
section represented oil revenue and the red section
represented the state's non-petroleum revenue. Non-
petroleum revenues included alcohol tax, tobacco tax, motor
fuel tax, Division of Motor Vehicle (DMV) fees, corporate
income tax not associated with oil, tourism corporate
income tax, and similar items. The red line had been
relatively stable. However, the state had experienced a
massive decline in oil revenue. The state's current total
projected traditional revenue was $1.5 billion down from
$9.5 billion.
Ms. Pitney indicated that the graph on slide 8 included the
state's use of the PF earnings over the 10-year period. She
noted that in FY 12 through FY 18 represented in green
showed the amount of PF earnings spent on the Permanent
Fund Dividend (PFD). She highlighted the purple section
which showed the POMV revenue added to the state's previous
traditional oil revenue and other revenue. Presently, total
revenues were just over $4 billion. She continued that of
the $4 billion, $3.1 billion was the POMV draw from the PF
earnings reserve account (ERA). The percent of market value
draw from the ERA was currently the largest portion of the
state's revenue. Oil Revenue provided less than a quarter
of the necessary funding to meet the budget demand. Prior
to FY 13 oil revenue met more than 100 percent of the
state's budget requirement. Before FY 13 oil revenue met 80
percent to 95 percent of the state's budget. Currently, the
traditional revenue stream was diminished. Price volatility
and the drop in oil demand as a result of the Corona virus
were conditions she thought the state would have to get
used to.
10:16:48 AM
Ms. Pitney turned to slide 9: Spring Revenue Forecast
(cont.)." She felt that the spring forecast, especially
with the current volatility, could be very optimistic for
both price and production. She also noted that the price
collapse which occurred earlier in the week was
unprecedented. She invited Mr. Painter to provide an
explanation of the sudden drop in the price of oil and the
current oil environment.
Mr. Painter continued to the last bullet on slide 9. He
explained that because of the direct impacts of COVID-19 on
drilling activities and the low prices, some companies have
announced reductions in investments and rigs not being used
as they had previously. It would result in lost production
in the short-term. The long-term impact would be more
significant. It was unclear when the rigs would restart
production. The spring forecast did not factor the loss of
the rigs that were laid down. Normally the loss of
investment might lead to additional revenue. However,
because the price was so low, companies would be paying the
minimum tax regardless. It would not result in additional
revenue.
Mr. Painter continued to slide 10: "A Note on Extreme Low
Oil Prices." He mentioned recent news headlines about oil
prices going negative which was primarily driven by
activity in the futures market. He furthered that the price
was negative on paper; oil was not necessarily being traded
for a negative value. The price returned to $9 per barrel
in the previous day. He thought there were a few things to
keep in mind, even with oil at $9 per barrel. He indicated
that $9 per barrel did not cover the cost of getting oil
from the North Slope to market the cost was just under
$10 per barrel. He furthered that oil at $10 per barrel
only covered transportation costs. At $25 per barrel some
of the large fields would just break even on operating
expenditures. It was not enough to pay for capital
expenditures. He reported that the break-even amount for
all oil company spending was typically around $40 per
barrel in Alaska. He suggested that even at the forecasted
price of $37 per barrel, the companies were losing money.
Mr. Painter reported that in order to balance the FY 20
budget, the price of oil would need to be $79 per barrel,
and for the FY 21 budget the price of oil would need to be
$69 per barrel. He based his statement on the production
levels listed in the spring forecast. If companies were to
choose to make different investment decisions or choose to
further throttle back production to support a higher price,
it could result in less revenue even if prices recovered.
Representative Wool had a question.
Co-Chair Foster asked members to hold their questions until
the end of the presentation.
10:20:46 AM
Ms. Pitney continued to slide 11 that showed an updated
fiscal summary. The Legislative Finance Division had
condensed its fiscal summary in the presentation. The short
fiscal summary and the budget summary provided more detail
and could be found on LFD's website. She indicated that the
revenue picture for FY 21 was about $4.5 billion. The
budget that was passed by the legislature in the prior year
was $5.47 billion. During the course of the current
session, there were supplemental appropriations of $399
million passed for a total FY 20 spend of $5.87 billion
UGF. The state's draw from the constitutional budget
reserve (CBR) and the statutory budget reserve (SBR) was
$1.3 billion. State revenue for FY 21 was anticipated to
decrease. The amount from the spring forecast was probably
optimistic at $4.2 billion. The legislature passed
$5.1 billion in spending for FY 21. She reported that
without any supplemental expenditures, the deficit draw
would be approximately $968 million. She concluded that the
CBR, the tool previously used to make up deficits, would
fall to a balance of zero.
10:23:18 AM
Ms. Pitney continued to slide 12: "Updated Fiscal Summary
(cont.)." She relayed that the numbers shown had been
revised following the receipt of the state's audited
financial statements. The numbers reflected the ending
balance for FY 19. The starting balance of the CBR was
$2.3 billion and deposits were estimated at $268 million.
The state drew $1.14 billion from the CBR and $172 million
from the SBR. Combined, the accounts made up the deficit of
$1.3 billion. She reported that the CBR's ending balance in
FY 20 was $1.4 billion. She relayed that beginning in FY 21
the state would see a much smaller deposit in earnings. The
state would have a draw from the CBR of $968 million in FY
21. There would not be a draw out of the SBR in FY 21, as
the balance of the account was depleted in the previous
year. In FY 21 the balance of the CBR would be
$537 million. She noted that the CBR starting balance for
FY 20 was $2.2 billion which included $464 million in
short-term borrowing dollars. It was money held in the
general fund and used for the state's short-term cash flow
needs.
Ms. Pitney conveyed that during the budgeting process the
CBR was the state's main cash flow tool. She reported about
$500 million had been used consistently every year for to
meet the states cash flow demand. By the end of FY 21 the
balance of the CBR (minus the cash flow amount) would be
$72.5 million. Essentially, except for cash flow borrowing,
the account would be empty. The legislature would need to
figure out another mechanism for cash flow borrowing which
she would discuss further into the presentation. She noted
that the governor's fiscal summary showed a $61.5 million
at the end of FY 21. The Legislative Finance Division
reconciled with the Office of Management and Budget (OMB).
Accounting for the short-term cash flow borrowing and a few
adjustments, both entities agreed on the $72.5 million
figure. She elaborated that there were some miscellaneous
offsetting adjustments having to do with revenue carry-
forward and cost changes. She confirmed that $72.5 million
corresponded with the amount OMB would reflect in future
fiscal summaries. She reposed the question of how to
account for short-term borrowing.
10:26:58 AM
Ms. Pitney moved to slide 13 showing outstanding items. She
reported there were spending items in FY 21 that might not
have been considered. The legislature passed an incomplete
capital budget. The request included $172 million for
projects that were not included in HB 205 [the FY 21
operating budget]. She reported that of the $172 million,
$35 million was associated with UGF projects. There were
things such as deferred maintenance and construction and
major maintenance that were not included. She also
mentioned the fire suppression funding as a result of the
fires from the prior year. She also anticipated some
COVID-19 related spending. Fire suppression and COVID-19
related spending would end up in the supplemental budget
bill in January 2021. Another amount that was not funded
was $55 million for tax credit debt service. If the
legislature was following the formula set in statute the
amount would be more than $100 million. Additionally, the
governor vetoed $210 million UGF, most of which was meant
for Alaskan communities. She thought that federal funding
might cover the costs but would be a one-time fix. The
costs would reappear in FY 22.
10:29:17 AM
Ms. Pitney turned to the outlook for FY 22 on slide 14. She
reported that the CBR would be functionally empty after
FY 21 if the legislature wanted to continue using it as a
cash flow mechanism. If the legislature did not use it, it
would not have a sufficient balance to cover an entire
year. She indicated that cash flow reserves could be made
up with funds other than from the CBR. She suggested that
other designated funds could be used as the state's primary
borrowing mechanism. Revenue anticipation notes could also
be used and were not uncommon. Regardless, the legislature
had to figure out the state's cash flow. She reported that
the most funding the state would have at the end of the
fiscal year was $500 million if there were no supplemental
expenditures. She noted the optimism of the spring forecast
and noted the CBR could be empty before the end of FY 21.
She relayed that with oil tax credits and community
assistance it would be very difficult to keep the FY 22
budget at its current level for FY 21.
Ms. Pitney continued reviewing the outlook for FY 22 on
slide 15. She suggested that if the FY 22 budget was left
flat using the FY 21 numbers plus 50 percent of the school
debt reimbursement, the state would have a $300 million
deficit before paying a PFD. If the state paid a $1000 PFD,
the FY 22 deficit would be approximately $1 billion. If the
legislature were to pay a statutory PFD, the budget deficit
would be $2.4 billion. She emphasized that the state would
have to look at structural budget reductions and consider
new and diversified revenue sources. She remarked that
overdrawing the PF ERA would have a cost. She reminded
members that although the ERA had a balance, the state was
already using more than $3 billion every year from the
account. She cited that for every $1 billion depleted
beyond the statutory draw, the POMV dropped $50 million
annually forever. She encouraged members to consider that
the POMV draw made up more than 60 percent of the state's
annual revenue stream. Overdrawing the ERA had the
significant consequence of compromising the annual $3
billion revenue stream into the future.
10:33:14 AM
Ms. Pitney moved to slide 16 regarding a longer-term
outlook. She indicated it was difficult to look out several
years because of all of the uncertainties around the
effects of the COVID-19 crisis. She thought legislators
should be more focused on other revenue streams to help
address the state's current issues. She encouraged the
legislature to consider limiting expenses and looking for
new and diversified revenue streams. She also noted that
changing the dividend formula would not be enough to close
the structural budget gap. The state had statutes for
expenditures and for revenue. The number of statutes that
drove expenditures well exceeded the statutes for revenue.
She reiterated the importance of addressing the statutory
deficit to reach a structurally balanced budget in the
near-term.
10:35:49 AM
Ms. Pitney moved to slide 17 to discussed the federal CARES
Act funding. She reported that another federal funding bill
was recently passed that would accommodate an additional
$500 million. Previously, the funding had been given to
tribes and to the state. The state had received $124
million for airports and $16 million for healthcare. The
stimulus checks were starting to arrive in Alaska. The
state had received $992 million in federal funding for the
paycheck protection program. She indicated that Medicaid
funding had increased with an increase of 6 percentage
points to the federal medical assistance percentages
(FMAP). The federal government was increasing its match to
the state's Medicaid which equated to reducing a portion of
the state's match. The state had also received some public
health funding. There were smaller pockets of funding such
as the Community Development Block Grant and the Community
Services Development Block Grant for about $2.8 million.
Ms. Pitney reported that on the previous day the governor
submitted a request for CARES Act funding in the amount of
$1.25 billion which included $562 million for direct
municipal relief, $300 million for small businesses, $50
million for non-profits, and $337 million for Public
Health. She reported there were other funding requests
including $48 million for education (most of which was
pass-through school formula funding), child nutrition, and
the National Endowment for the Arts. There were federal
transit grants in the amount of $29 million and federal
aviation grants. She relayed that $100 million of the $1.25
billion in CARES Act funding was for fisheries. The
governor had also requested a grant from the U.S.
Department of Justice in the amount of $3.6 million out of
a $850 million nationwide grant program. She reported that
the University of Alaska would receive approximately $7.9
million. The University only had receipt authority for a
portion of the funding but was requesting the remaining
receipt authority of $50 million. There was other money
coming into the international airport system in the amount
of $32 million.
Ms. Pitney continued that the state had receipt authority
in the area of Unemployment Insurance (UI). The insurance
payments were moving out to unemployed workers presently.
Many of the programs associated with the governor's funding
request did not have federal receipt authority. In the
past, many of the governor's requests had required an
appropriation rather than an RPL. She explained that the
Legislative Budget and Audit Committee was an interim
committee. Since the legislature remained in session, she
argued that an appropriation bill was a more suitable path
to getting funding out to communities. She concluded her
presentation and was available for questions.
10:41:41 AM
Co-Chair Foster noted that the governor had submitted his
plan for spending the $1.25 billion via the RPL process.
The legislature would be reaching out to OMB to request a
summary of the plan. He noted that Speaker Edgmon was in
attendance online, and Senator Olson was in the audience at
the Anchorage Legislative Information Office.
Representative Wool asked about the projection for FY 22.
Ms. Pitney responded that the projected price of oil for
FY 22 was $41 per barrel. Representative Wool noted that
the non-petroleum revenue had stayed constant since FY 12.
Co-Chair Johnston referred to slide 12. Ms. Pitney stated
that $465 million would be needed for cash flow purposes.
She wondered if the amount would be enough. Ms. Pitney
responded that she would be guessing. She would have a
better idea once the financial statements were released
sometime in the fall.
10:45:58 AM
Co-Chair Johnston referred to slide 14 regarding cash flow.
She conveyed that the Federal Reserve stated it would back
past anticipation notes at a zero percent interest rate
because the municipal bond market was in disarray. She was
concerned about what revenue would be associated with the
state's revenue anticipation notes. She suggested that the
bulk of the state's revenue came from the PF. She was
unsure that the state would be able to do revenue
anticipation notes. Ms. Pitney indicated that whether it
was revenue anticipation notes or any other debt
instrument, with Alaska's structural budget deficit driven
by a number of statutes, the state was in a true structural
imbalance. She reported that Alaska's credit rating had
been downgraded again in the prior week which would result
in the state paying higher interest rates.
Co-Chair Johnston was concerned that even if the state was
willing to pay a premium for debt service, the state's
revenue structure was currently very weak.
10:48:37 AM
Representative Josephson referred to slide 5 regarding POMV
revenue. He had heard that the state should expect a $300
million reduction in the draw amount which was not
reflected in the PowerPoint. He asked her to elaborate. Ms.
Pitney pointed to the POMV revenue section on slide 5. The
Legislative Finance Division was projecting the same in FY
21 reflecting a 5-year lagging average. The first year,
with a drop in the market, reflected a change in the POMV
value. In FY 22 there would be a $47 million reduction. In
FY 23 there would be a reduction of $98 million. If the
table was extended out, FY 24 would reflect a reduction of
about $120 million. By FY 27 the reduction would be about
$300 million.
Representative Josephson referred to slide 10. He thought
the numbers were extremely variable. He referred to
slide 13 which showed $260 million in vetoes rather than
$210 million in vetoes. Ms. Pitney explained that the
difference could be that only the vetoes from the operating
budget [HB 205] were reflected in LFD's numbers. There were
also vetoes in the supplemental budget [HB 234].
Representative Josephson posed a question about where the
$260 million of vetoed monies would reside if the vetoes
were sustained. Ms. Pitney replied that the money would be
part of the balance of the CBR. She explained that the
state was already drawing $968 million to cover existing
expenses which took the vetoes into account. It would
affect the cash flow amount of the CBR.
10:52:53 AM
Representative Josephson mentioned that 474 people had died
in the New York area. He mentioned the harsh effects of the
historical Spanish Influenza in Alaska. He thought congress
was being very generous. He noted that the governor
intended to direct $156 million in federal dollars to
Anchorage. He did not think the government of Anchorage had
experienced such a fiscal impact to-date. He wondered if
the federal monies would be a windfall assuming the city
kept its death and infection rates down. Ms. Pitney
responded that the impacts of the health situation would be
much different from the impacts economically. She thought
there was an opportunity to mitigate the economic impact.
It was up to the legislature to provide input in the
distribution of funds.
Co-Chair Johnston mentioned the $1.2 billion in federal
funding. She reported that the governor had followed
through with legislative intent to distribute 45 percent of
the funds to communities. In the first phase of the CARES
Act, communities with a population of 500,000 or more would
be required to apply directly to the federal government. In
turn, the federal government would be responsible for
distributing funds to local communities directly. However,
Alaska did not have any cities with a population of 500,000
or more. It would be up to the state to disburse and manage
the funding. The governor had released his approach to the
situation in the prior evening and confirmed that 45
percent of the funding would go to local communities.
Co-Chair Foster indicated the committee had been joined by
Representative Matt Claman at the Anchorage LIO.
10:57:15 AM
Representative Carpenter referred to slide 10. He directed
his question to Mr. Painter. He asked him what would happen
when production was curtailed. He had it on very good
authority that the state was days way from a slowdown in
production. If the economy did not pick up nationwide to
grow demand for fuel products, Alaska would be faced with a
complete shutdown within the following 90 days, as soon as
June or July. The analysis by LFD was based on average
values. If the price of oil dropped to zero, Alaska would
still have an average of about $46 per barrel. However, he
wondered what would happen to the state's revenue when
production was severely scaled back.
Mr. Painter replied that of petroleum revenue, only
property tax would be relatively unaffected, as property
values would not drop quickly. However, it would have a
severe impact to the minimal production tax the state was
still receiving as well as the royalty share. The low
production scenario provided by the Department of Revenue
(DOR) only went down to 416,000 barrels in FY 21, nowhere
close to zero. He thought exploring what would happen in
extreme scenarios was worth looking at. Presently, LFD did
not have the data regarding what the precise impact might
be.
Representative Carpenter indicated no one would have the
data until it occurred, as it would be unprecedented. He
suggested the potential of max capacity of all of the
storage around the world. If his sources were correct,
production would come to a halt due to not having capacity
for storage. He thought the state should account for the
possibility of a shutdown of production. Otherwise, he
thought the numbers were simply "pie in the sky." He would
be interested in seeing what revenues would be with a 50
percent reduction in through-put. He thought the scenario
was plausible.
Representative Carpenter referred to slide 17. He asked Ms.
Pitney about the $465 million for short-term borrowing used
for cash flow. He wondered if the money was automatically
repaid as revenue flowed in or whether it had to be
reappropriated in the following year. Ms. Pitney responded
that if the CBR was not used, the state would have to
borrow in the short-term or use another funding source. She
indicated that the CBR should be paid back at the end of
each year. However, the accounting was not trued-up at the
end of the year. Technically, the $460 million was
available, but had consistently been used. Unless the money
was replaced with a different short-term borrowing
mechanism, it would need to be saved. A short-term
borrowing mechanism, such as a revenue anticipation note,
would require an appropriation.
11:02:34 AM
Representative Carpenter thought that the dollars the state
would be using for cash flow would essentially be money
spent at the end of the budget year, and a new
appropriation would be necessary in the following year. Ms.
Pitney concurred.
Co-Chair Foster asked Mr. Painter if he could provide some
modeling. The point that Representative Carpenter had
suggested was a good one. Mr. Painter explained that when
getting to low production levels transportation costs would
be spread over fewer barrels. It would be difficult to
anticipate such numbers. He would work with DOR to provide
some different scenarios to the committee.
Vice-Chair Ortiz referred to slide 6. He asked about the
FY 21 budget of $5.15 billion. He wondered if the figure
included the governor's vetoes. Ms. Pitney indicated that
the governor's vetoes were included, and if the vetoes were
restored, the number would be higher.
Vice-Chair Ortiz asked about the education funding of
$30 million that was vetoed by the governor. He wondered if
the CARES Act funding could be used to supplant the
reduction in education funding. If it could be used, he
asked if stipulations would be attached to the use of the
monies. Ms. Pitney replied that $38 million could be used
for education stabilization based on the federal sideboards
of the CARES Act. She confirmed that the governor was
proposing to distribute $38 million based on the foundation
formula. She did not know if there were additional
sideboards on the use of the funds once they reached the
schools.
11:06:56 AM
Co-Chair Johnston had spoken with the Department of
Education and Early Development. She indicated that the
funding formula for the funds were tied to the Title 1
population. The department had been working diligently to
get a number of exemptions for the purpose of the funds.
One of the exemptions was related to broadband.
Representative Sullivan-Leonard referred to slide 15 and
the flat budget for FY 22. She wondered what the oil price
would have to be. She wanted to know what the budget would
look like with an average oil price of $25 to $30 per
barrel. She wanted to know what the budget would look like
with true numbers. Ms. Pitney responded that the spring
forecast for FY 22 was based on an oil price of $41 per
barrel. If the price of oil dropped to $25 to $30 per
barrel, the deficit would grow from $300 million to between
$600 million and $700 million.
Representative Sullivan-Leonard commented that she did not
think the state was looking at a flat budget. She wanted to
see additional modeling for a more realistic picture. She
noted some economists were predicting $20 per barrel. Ms.
Pitney responded that she would provide additional modeling
with lower production and lower pricing.
Representative Sullivan-Leonard hoped leadership could sit
down and have a conversation about a true fiscal plan. The
budget needed to be realistic moving forward.
11:11:25 AM
Representative Carpenter asked why a bill was more
appropriate than the RPL process. He asked Ms. Pitney to
comment. Ms. Pitney deferred to Megan Wallace of
Legislative Legal Services. Currently RPLs did not have
federal receipt authority. Representative Carpenter was
curious where Ms. Pitney was getting her foundation.
Representative Wool asked Mr. Painter about oil taxes and
an oil tax initiative. Mr. Painter had commented that at
current prices, the state was at the minimum. Even for
legacy fields, at current low prices, the initiative would
not raise much revenue. He asked for clarification. Mr.
Painter responded that the current minimum tax was 4
percent of gross. One of the provisions of the initiative
would raise the minimum tax to 10 percent of gross. The
forecast for production tax in FY 21 was $122 million based
on 4 percent gross. If the minimum tax was 10 percent of
gross, the amount would increase to between $250 million
and $300 million.
Representative Wool alluded to the comments made by
Representative Sullivan-Leonard and Representative
Carpenter. He noted that the state still had a reliable
source of income, the Permanent Fund, thanks to Governor
Jay Hammond. He thought the state's budget and revenue
sources would have to be adjusted accordingly.
11:15:14 AM
Representative Carpenter understood that the RPL process
had been used to expand Medicaid in 2015. He was curious if
the situation was similar to the current situation. He
asked if the state had had the authority to expand
Medicaid. He queried the difference. Ms. Pitney suggested
that Medicaid was traditionally a federally funded program.
The RPL process was used in the interim through the
Legislative Budget and Audit Committee.
Representative Carpenter thought it would be helpful to
know which line items were associated with federal receipt
authority. Ms. Pitney would provide the information.
Representative Josephson revisited Ms. Pitney's statement
that if the state paid a PFD of $1000 in FY 22, it would
have a deficit of $1 billion. He relayed a hypothetical
scenario in which the Department of Corrections and the
University of Alaska were eliminated. He thought that in
the scenario the state would still have a $300 million
deficit. He asked if he was accurate. Ms. Pitney responded
in the affirmative.
Co-Chair Johnston made a comment regarding the funds coming
from the federal government. She thought the only time
Alaska had a similar situation was during the Exxon Valdez
Spill at which time 80 percent of the state's revenues were
from federal funding. She suggested that the state look at
how things were done at that time. She also remarked that
legislators and the administration were concerned about
getting the funds to communities and to the people of
Alaska as quickly as possible. Times were stressful for
everyone. She hoped OMB would be invited to explain the
RPLs and the process.
Co-Chair Foster would investigate the possibility of a
meeting with OMB or with LFD as an alternative. He thanked
everyone for attending the meeting.
ADJOURNMENT
11:20:34 AM
The meeting was adjourned at 11:20 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Fiscal Outlook HFIN 4-22-20.pdf |
HFIN 4/22/2020 10:00:00 AM |