Legislature(2021 - 2022)ADAMS 519
04/08/2021 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: American Rescue Plan Act of 2021: Office of Management and Budget | |
| Presentation: American Rescue Plan Act of 2021: Legislative Finance Division | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 79 | TELECONFERENCED | |
| + | HB 80 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
April 8, 2021
9:04 a.m.
9:04:54 AM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 9:04 a.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
None
ALSO PRESENT
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor; Paloma Harbour, Fiscal Management
Analyst, Office of Management and Budget, Office of the
Governor; Alexei Painter, Director, Legislative Finance
Division.
SUMMARY
PRESENTATION: AMERICAN RESCUE PLAN ACT OF 2021: OFFICE OF
MANAGEMENT AND BUDGET
PRESENTATION: AMERICAN RESCUE PLAN ACT OF 2021: LEGISLATIVE
FINANCE DIVISION
Co-Chair Foster reviewed the meeting agenda.
^PRESENTATION: AMERICAN RESCUE PLAN ACT OF 2021: OFFICE OF
MANAGEMENT and BUDGET
9:06:16 AM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced a PowerPoint
presentation titled "State of Alaska Office of Management
and Budget: Senate Finance COVID-19 Relief Funding
Overview," dated April 8, 2021 (copy on file). He stated
that the American Rescue Plan Act (ARPA) was the sixth in a
series of federal fiscal response packages over the past
year in response to the COVID-19 pandemic. The relief
package most talked about thus far was the third relief
package, the Coronavirus Aid, Relief, and Economic Security
(CARES) Act that brought $1.25 billion to the state. Prior
to the CARES Act, there had been two smaller acts with
smaller amounts of funding focused on various areas such as
vaccines and leave for employees who were sickened by COVID
or were impacted by Coronavirus in some way.
Mr. Steininger detailed that the CARES Act had provided
much of the fiscal response for second order impacts over
the past year. He stated that ARPA built on the prior
funding to address some of the second order impacts of
COVID on states, communities, and economies. The timeline
on slide 2 showed the various federal fiscal responses. He
referenced a spreadsheet titled "Attachment 1" showing
federal funding to Alaska for COVID-19 response (copy on
file). The spreadsheet listed the various grants under each
of the federal relief acts. He noted that the presentation
used color coding for the various federal acts to make
things clearer. He referred to names of the various acts.
He detailed that green represented the initial responses
from the federal government in the spring of 2002. The act
introduced in December 2020 [Coronavirus Response and
Relief Supplemental Appropriations Act (CRRSAA)] was shown
in blue and ARPA, the most recent relief, was reflected in
purple. He relayed that the Office of Management and Budget
(OMB) was still working through its understanding of the
various pots of money coming to the state.
Mr. Steininger added that the bright yellow shown in the
spreadsheet reflected grant items that still needed an
appropriation to expend. The green in the CRRSAA section
represented items that OMB had submitted for an RPL
[revised program legislative] or had put forward an
appropriation request in the normal budget process. White
items on the sheet reflected items where no appropriation
was required, or an appropriation had already been
received.
9:09:53 AM
PALOMA HARBOUR, FISCAL MANAGEMENT ANALYST, OFFICE OF
MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, moved to
slide 3 and discussed that the largest pot of discretionary
funding for COVID relief was the Coronavirus Relief Funds
(CRF). She explained that when the funds had been made
available in the spring of 2020 there had been three broad
guidelines from the federal government on how the funds
could be spent. The funds had to be necessary expenditures
incurred due to the public health emergency, the expenses
could not have been accounted for in the budget most
recently approved, and the expenses had to be incurred
between March 1, 2020, and December 30, 2020. She stated
there had been very little guidance and a short time frame
in which to spend the funding. The legislature had passed
appropriations for the funding in the April to May 2020
timeframe. She elaborated that RPLs had been used for part
of the funding.
Ms. Harbour highlighted that a number of iterations,
guidance, and frequently asked questions had been released
after the act, providing clarity on allowable funding
expenditures. She stated that flexibility in the
appropriations had been critical for the state's ability to
utilize the funding as the guidance continued to change.
9:11:58 AM
Ms. Harbour advanced to a pie chart on slide 4 showing how
CRF funds had been spent. The CRF funds had been
appropriated in the spring of 2020 and were almost fully
allocated. There was a $45 million reserve to address
potential needs yet to be identified (e.g., a potential
surge in cases). She explained that if the funds were not
needed for emergent needs, they could be used to offset
agency costs at the end of the fiscal year and increase the
undesignated general funds (UGF) lapse. She referenced a
spreadsheet titled "Attachment 2" in members' packets
showing Alaska CRF allocations and expenditures (copy on
file). The spreadsheet included additional details showing
how funding was allocated to various projects. She relayed
that Alaska had been selected for a desk review of the CRF
funding. She detailed that OMB had an entrance conference
with U.S. Treasury, Office of Inspector General (OIG). She
explained that OMB had responded to OIG's initial document
request. She expounded that OIG had a July target date for
its preliminary report, which OMB would respond to. She
relayed that OIG's final report should be released in
August.
Representative Edgmon appreciated the presentation. He
referenced the terms "allocated" versus "appropriated." He
shared that he had watched the presentation when it had
been given in the other body and had heard the word
appropriation, while he had heard the words "fully
allocated" in the current presentation. He stated that the
funds that the CARES Act funds had gone through the RPL
process.
Ms. Harbour agreed.
Representative Edgmon believed there was an open question
for calendar year 2021 in terms of what the ARPA funds
would entail once the Treasury guidelines were received
around May 10. He stated that for him it was still an open
question in terms of who had the ability to appropriate the
money and distribute it to Alaskans. He asked if it was the
governor in the RPL process or the legislature through the
appropriation process. Additionally, he asked whether the
word "appropriation" was synonymous with going through the
RPL process as well as being appropriated by the
legislature.
Mr. Steininger answered that anything shown in yellow on
the list of grants coming in, particularly the ARPA grants,
required appropriation of federal receipt authority by the
legislature to state agencies for the ability to expend the
funds. He referenced discussion on allocations and
explained that appropriations had been made to the
Department of Health and Social Services (DHSS) or through
the RPL process. He noted the RPL process represented an
appropriation included in the appropriations bill action on
a specific appropriation. He detailed that flexibility
within appropriations allowed the state to slightly modify
plans as [updated federal] guidance came out through the
summer. The $45 million represented on slide 4 reflected
unallocated portions of the appropriation to DHSS emergency
programs where much of the response mitigation activities
had been managed. He stated there was a small portion of
the $45 million that was unallocated. He reiterated that
the $45 million was money appropriated to DHSS.
9:16:27 AM
Representative Edgmon stated his understanding that the
word "appropriation" could be used synonymously with the
RPL process that had authorized the $568 million in
community relief grants in 2020. He believed the
legislature had authorized the action later on. He stated
that OMB's presentation was not opining on whose
responsibility it was with the ARPA funds henceforth on
receipt of [federal] guidelines specifying how the funds
could and could not be used. He wanted to be clear that the
word appropriation could mean after the legislature was out
of session and while the legislature was in session and
that it was not code for "the legislature has to
appropriate the ARPA money." He stated he would ask further
questions if he continued to receive an ambiguous response.
Co-Chair Foster recognized that Representative LeBon had
joined the meeting.
Representative Josephson looked at slide 4 related to other
COVID costs. He remarked there was $45 million the state
had control of for use on emergent expenses. He asked for
verification that the funds could be used to backfill or
supplant other DHSS expenses if the state could not find
meaningful ways to spend the funds in the next two months
and three weeks.
Mr. Steininger replied that slide 4 showed expenditures the
state had made in response to COVID. He explained it was
not that the state had not spent state funds on COVID
response that could be eligible for reimbursement from the
$45 million. He expounded that the state had not reimbursed
some of the state costs because agencies had been able to
absorb some of their spending on COVID. He continued that
at the end of the year, if the state did not have other
emergent needs requiring the use of the federal monies, it
could reimburse state agencies for the costs incurred due
to COVID. He explained that the action would effectively
lapse the general funds agencies had used.
Mr. Steininger explained that at the end of FY 20 there
were costs incurred in the Department of Public Safety,
which was a presumptively eligible cost for COVID relief
funds (any public safety personnel costs). He elaborated
that at the end of the fiscal year, a portion of the CRF
funds had been used to reimburse some of the personnel cost
in order to lapse additional money into the Constitutional
Budget Reserve (CBR). He clarified that the CRF funds had
not all been used because some funds were necessary in case
of emergent situations requiring response by the state that
fit within the CRF guidelines. The administration was still
sitting on the $45 million in the event there was a need
for the funding, but there were plenty of costs incurred
throughout state government that were eligible for
reimbursement from the funds. He stated that at the end of
the day, the money would not go unutilized.
9:20:32 AM
Representative Josephson asked if it would be knowable to a
legislator prior to adjournment, what funding would lapse.
Mr. Steininger answered that OMB updated and provided
reports to the legislature on all spending related to
COVID, including how much of the CRF was unexpended. He
stated that the decision about whether to offset general
fund costs in agencies - agencies that did not necessarily
need the offset to meet other needs - would happen at the
end of the fiscal year based on whether or not the state
had to utilize the $45 million for more specific COVID-
related emergent events. He added that the amount may not
be knowable [prior to adjournment] because OMB would not
know until the end of the fiscal year.
Representative Johnson knew there were existing requests
for money from the state, which could potentially be paid
from the [CRF] fund and agencies could potentially lapse
their money. She wondered at what point the state would
decide it would no longer hang on to the funds and the
money would be fully expended.
Mr. Steininger replied that it was a balancing act. He
explained that the CRF was only eligible for use through
the end of the calendar year. He elaborated that due to the
incoming federal ARPA funds it loosened up the need to hold
onto the $45 million in contingency. He stated it was
likely the state would soon have a better understanding of
how the CRF funds would be used once there was a better
understanding of how ARPA funds could be used. He remarked
that from the high level eligibility criteria, it appeared
the CRF looked to be more flexible in some ways than ARPA
funding; however, until the state received more specific
guidance on ARPA it was difficult to make commitments with
the $45 million [in CRF funding] outside of emergent needs.
9:23:54 AM
Ms. Harbour turned to slide 5 showing state agency current
COVID-19 expenditures. The slide showed there was about
$116 million in state incurred expenses, part of which
could be offset with CRF.
Mr. Steininger moved to slide 6 outlining the current
information on ARPA eligibility criteria. Similar to the
CRF, broad categories had been identified for ARPA. The
funds could be used to cover expenses to respond to the
public health emergency and its negative economic impacts;
to respond to workers performing essential work by
providing premium pay to eligible workers; for the
provision of government services to the extent of the
reduction in revenue due to COVID-19; and to make necessary
investments in water, sewer, or broadband infrastructure.
The act included a couple of specific restrictions. He
detailed that direct or indirect offsets to a reduction in
net tax revenue resulting from a change in law, regulation,
or administrative interpretation, was not allowed.
Additionally, deposits into any pension fund were not
allowed.
Mr. Steininger continued to address slide 6 and relayed
there had been many questions about all of the pieces. He
shared that the state had participated with several
different organizations including the National Governor's
Association and the National Association of State Budget
Officers in compiling questions on the guidance to send to
the Treasury. He stated it appeared Treasury had learned
from experience and feedback the previous summer when it
had issued many iterations of guidance. He reported that
Treasury seemed much more interested in getting as many of
the questions in upfront in order to provide more complete
guidance. The federal guidance was not due until May 10. He
noted that OMB was hopeful the guidance would come sooner,
but it may not happen.
Mr. Steininger provided an example of the scale and scope
of questions coming in. He highlighted that the letter from
the National Governor's Association (included in members'
packets) was 25 pages of questions. He added that the list
of questions provided by OMB was two pages single spaced.
There were a significant number of detailed questions on
how to interpret the federal guidance. Given the nuance to
the interpretation the federal government had given CRF,
OMB wanted to ensure it understood what was and was not
eligible for ARPS funding. He pointed out that thus far,
the eligible categories were broad and covered many
different ideas and concepts. He explained that it was the
nuance of the individual plans that the state started to
get concerned about how the Treasury would interpret the
language it had issued related to allowable expenses.
9:28:12 AM
Representative Wool looked at the items on slide 6 and
remarked that [allowable expenses outlined in] items A, B,
and C were COVID-related whereas item D appeared to be new
investment in infrastructure. He asked for verification
that a community could build a brand new broadband system
with the funds.
Mr. Steininger replied that it was his understanding that
the funds could be used for new infrastructure for
broadband. He believed the federal government saw broadband
as COVID-related because of telework capability for people
in areas without broadband infrastructure. Additionally,
COVID had been somewhat taxing on water and sewer
infrastructure for hygiene related reasons.
Co-Chair Foster stated that much of the relief being
provided required applying online. He highlighted that many
people in rural areas had problems accessing the funds.
Representative Wool remarked that remote school had poked
numerous holes in the understanding of what defined good
internet. He asked for verification that as long as a tax
was not changed, the funding could be used to make up for a
lack of tax revenue. He used bed tax in the Denali National
Park and cruise ship head tax as examples.
Mr. Steininger answered that it was an area where the
federal government had given a bit more guidance because
the interpretation of the change in tax had received many
questions. It was OMB's current understanding that a loss
in tax revenue as a result of COVID could be backfilled
whereas a deliberate reduction to the bed tax rate could
not be backfilled.
Representative Wool remarked that there was no statewide
sales tax in Alaska; however, any community with a sales
tax would have a loss in revenue because people were not
buying as much. He stated his understanding that any loss
of state, municipal, or other tax revenue was fair game.
Mr. Steininger agreed. He added that several of the
questions OMB had asked the federal Treasury was how to
calculate the loss in tax revenue. He explained that the
phrasing in the bill talked about a drop from a base year
of FY 19; therefore, OMB believed it was merely the
difference in the tax revenue between FY 19 and the current
fiscal year. He noted it was not clear how it would be
interpreted. He advised communities to wait until the
calculation guidance was received before deciding a
specific amount was allowable.
Co-Chair Foster remarked that internet was important
throughout the state when it came to distant learning and
education, particularly in rural areas where speeds were
incredibly slow or nonexistent and costs were exorbitant.
9:32:11 AM
Vice-Chair Ortiz referenced item B on slide 6 outlining
funds could be used to cover expenses for workers
performing essential work during COVID-19. He asked if
there was a clear definition identifying who essential
workers were.
Mr. Steininger replied that OMB had included the question
in its list to the Treasury.
Vice-Chair Ortiz asked how the distribution of funds would
take place based on the current definition of essential
workers.
Mr. Steininger noted that the topic would require
refinement when more information was received. He stated
that his basic understanding was that it would be based on
an hourly rate of up to $13 per hour in premium pay to
essential workers up to $25,000 per worker. He did not want
to speculate on how the mechanisms worked, how the funds
would be distributed, or on who would qualify.
Vice-Chair Ortiz surmised it would allow for the
distribution to go to private businesses. He highlighted
there was no stipulation about government workers only. He
asked there would be a direct distribution to businesses.
9:34:20 AM
Mr. Steininger responded that he did not see the funding
being limited to state or government employees. He stated
his understanding that the funding would be open to all
essential workers. He did not know whether funds would be
distributed through employers or directly to workers. He
could speculate on which option would be easier to manage,
yet he did not know what the Treasury would decide.
Representative Carpenter stated his understanding that item
B [on slide 6] pertained only to eligible workers who were
employed during the COVID pandemic. He asked for
verification that a premium pay would be added to a
worker's regular paycheck; however, the funds would not go
to workers who were not deemed essential and therefore were
not working during the pandemic.
Mr. Steininger replied that it was his understanding of
item B; however, OMB believed individuals who had lost
their jobs would qualify for funding under item A related
to negative economic impacts to businesses, households, and
so on.
Representative LeBon stated that during the subcommittee
process for the Department of Public Safety (DPS), the
subcommittee had looked at trooper overtime or premium pay.
He believed everyone would agree that Alaska State Troopers
would be defined as essential workers. He asked if the
payment of overtime or premium pay to the troopers through
DPS would allow for backfilling part of the expense through
ARPA.
Mr. Steininger agreed that troopers would fall under the
essential worker category as they had under the CRF
funding. He stated it would make troopers eligible for
premium pay under the eligibility criteria [listed on slide
6]. He believed March 3, 2021, was the start date for
eligible expenses for ARPA funds, meaning it would not be
possible to look back very far in terms of money paid to
troopers.
Representative LeBon suspected it would be an ongoing
challenge for the department. He shared that he and Co-
Chair Merrick had looked at the trooper's budget and their
ability to fill vacant positions and avoid a lot of
overtime was the challenge. He suspected it would be an
ongoing challenge.
9:38:24 AM
Mr. Steininger referenced a document titled "Attachment 3"
showing state and local allocation estimates (copy on
file). He explained that the attachment provided detail on
ARPA funding that would go to communities. The first page
broke out the amount coming to the state in terms of the
$1.019 billion. He stated that information under a yellow
header provided the amount of money coming to the different
communities. He noted that the community distributions had
been set by the federal government, which was different
from CRF funding where the state had set the distribution
to communities. He explained that if someone observed some
communities receiving a markedly different amount of money
it was due to the allocation formula used by the federal
government.
Representative Edgmon stated that the committee had heard
from the Alaska Municipal League (AML) director that tribes
would receive $1.7 million per tribal entity in Alaska. He
remarked there were almost 300 tribes in Alaska. He asked
why tribes were not included in the analysis. He believed
items A through C on slide 6 did not refer to tribal
entities in Alaska. He asked why there was not a breakdown
of tribal entities along with communities. He stressed that
the amount of money coming into Alaska for tribes was
significant.
Mr. Steininger answered that the tribal money coming in was
included in Attachment 1. He explained that the tribal
funding did not flow through state government or the
appropriation process through the legislature. The funding
was not included in Attachment 3 because the tribal grant
was separate from the state and local relief fund
allocation represented in the attachment. He clarified that
the distribution was separate grant included in ARPA. He
detailed that Attachment 3 showed the state and local
relief fund for state and local governments and not tribal
entities. He relayed that OMB did not yet have an exact
list of the distribution going to tribal entities.
9:41:22 AM
Representative Edgmon noted that AML had said $1.7 million
would be coming to each tribal entity. He believed it was a
significant amount of money that should be included
somewhere in future presentations in order for the
committee to understand interfacing that would take place
between money going to communities, infrastructure
projects, and a broad array of uses extended to 2024 with
more allowable uses than under the CARES Act. He hoped
there would be opportunity of synergy for the monies to be
working together for the state's greater good.
Ms. Harbour answered that Attachment 1 included a $600
million placeholder for the Coronavirus Relief Fund tribal
set-aside. She detailed that OMB knew there would be $398
million coming, which would be divided among tribes at $1.7
million per tribe. She elaborated that OMB did not
currently know how the remaining $200 million would be
distributed (e.g., based on population or fiscal impacts).
She explained that OMB was waiting for the information to
be released from Treasury. She clarified that the document
provided to the committee with more details on the state
and local fund was from the U.S. Senate estimates. She
noted that OMB did not yet have similar information related
to tribal governments.
Co-Chair Foster asked if the placeholder [for the tribal
set-aside] was located on page 2 [of Attachment 1].
Ms. Harbour replied affirmatively. She detailed that the
tribal set-aside was located on page 2, row 2 under the
American Rescue Plan Act header.
Vice-Chair Ortiz looked at Attachment 3 showing the
distributions to state governments, metro cities, and non-
counties. He asked if the word "counties" was a direct
substitute for boroughs in Alaska. He asked if non-counties
would be unincorporated areas in Alaska [he received a non-
verbal affirmative from the testifiers]. He asked if tribes
would receive any of the $43 million set aside for non-
county areas. He assumed many tribes were located in
unincorporated areas or areas. He asked if tribes would
receive additional money.
Mr. Steininger answered that there was a list by community
that would go to the community government, similar to the
distribution the state made from CRF to communities.
Vice-Chair Ortiz stated the distinction would be that a
tribal entity within a community would receive some funds
and the government within a tribal entity would receive
funds as well.
Mr. Steininger agreed.
9:44:59 AM
Representative Wool referenced the CARES Act allocation to
Native corporations, which he believed was going to the
U.S. Supreme Court. He asked if the allocation was included
in the documents.
Ms. Harbour replied that the approximately $500 million was
not currently included in the numbers because OMB did not
yet know if the money would be received.
Representative Wool asked for verification the number
stated by Ms. Harbour was $500 million.
Ms. Harbour responded affirmatively.
Representative LeBon asked for a high level summary of the
federal distribution formula for the [ARPA] funding.
Ms. Harbour replied that the distribution was primarily on
a per capita basis. She added that the way the federal
government had defined the units of government was a little
odd. For example, the Haines Borough did not have an
incorporated city; therefore, it was treated differently.
Representative Johnson asked if the tribal set-aside shown
on page 2 of Attachment 1 would go directly to tribes or
pass through the state.
Mr. Steininger answered that the funding would go straight
to tribes and would not pass through the state.
Representative Carpenter asked whether the funding going to
tribes had a similar list of specifications and
restrictions.
Ms. Harbour confirmed that the federal legislation included
restrictions and spending specifications for the funds
going to tribes.
Representative Carpenter requested a summary at a later
time.
Ms. Harbour agreed to provide the information.
Mr. Steininger relayed that the next several slides
provided detail on direct grants that were not part of the
larger $1 billion community fiscal response fund.
Ms. Harbour remarked that they were hoping to go through
the information fairly quickly. She suggested that if a
deeper dive was desired it could be helpful to invite the
agencies administering the programs to answer the in-depth
questions.
Representative Edgmon looked at slide 7 and asked for the
difference between an RPL and an appropriation. He pointed
to language on the slide specifying that ARPA required an
additional appropriation. He asked if an appropriation
meant the legislature needed to be in session to
appropriate. Alternatively, he wondered if it meant the
Legislative Budget and Audit Committee (LB&A) could
appropriate through the RPL process.
9:48:38 AM
Mr. Steininger responded that the language meant an
appropriation was required to receive federal funds. He
stated that the RPL process was part of the appropriation
process and was an available avenue; however, it was the
administration's intention to put forward appropriation
requests to cover any of the funds requiring additional
appropriation as part of the budget process. He stated that
OMB recognized the timing of receiving the federal guidance
and putting forward an appropriations request was tight,
but it was the administration's intention to put forward
appropriation requests for consideration by the legislature
because appropriation was required to expend the funds.
Representative Edgmon stated that the federal guidelines
would be released on May 10 and the legislature would
adjourn on May 19. He asked if the work could be completed
in nine days.
Mr. Steininger answered that OMB was working to be prepared
to release amendments as soon as possible after receiving
the [federal] guidance. He informed members that OMB would
not wait until the additional guidance arrived to do the
technical work required to submit appropriation requests to
the legislature because of the tight turnaround. He agreed
that a nine-day turnaround was difficult and challenging;
however, the timeline was a product of the federal Treasury
and not OMB.
Representative Edgmon surmised that the committee could not
expect amendments prior to the 10th to some degree as OMB
anticipated what the guidelines would be. He remarked that
the timeline would require swift action, otherwise the
legislature would have to extend session or go into special
session. He wanted to have some clarity to the discussion
and recognized there was a limited amount of clarity from
the agency and the legislature as the appropriating body.
9:51:06 AM
Ms. Harbour added that guidance would be received on May 10
date for the $1 billion in state and local fiscal relief
funds. She clarified there were different timeframes on the
guidance for the rest of the programs. She highlighted the
emergency rental assistance program receiving additional
funding via ARPA would have the same criteria as the
emergency rental funding received under CRRSAA; therefore,
OMB was not waiting for additional guidance. She elaborated
that OMB had submitted budget amendments for the housing
relief funding on April 1. She explained that as soon as
OMB received guidance on a program it was working and
submitting amendments for the legislature's consideration.
Representative Josephson stated his understanding that the
administration was already appropriating some of the ARPA
money because emergency rental assistance was a knowable
category of spending that guidance could not significantly
alter.
Ms. Harbour agreed. She made another comment on housing
relief on slide 7. She referenced the emergency housing
choice vouchers and explained that the amount would not be
known likely until the end of May. She detailed that OMB
had submitted an amendment as a placeholder for the
funding. She stated it pointed to a need for a bit of
flexibility in appropriations that were made. She relayed
that OMB had put in $2 million as a placeholder, but the
exact amount would not be known until late in the session.
Representative Johnson looked at Attachment 1 and
referenced the $600 million tribal set-aside and $100
million for the childcare development fund to tribes. She
thought there was $3.2 million for tribal childcare in the
DHSS subcommittee budget. She asked if the existing
increment in the budget would be needed in light of the new
money coming in.
Mr. Steininger deferred the question on how the two funding
increments were related to DHSS. He had not looked at the
connection between the two increments. He stated the amount
that came out of the subcommittee was not a request by the
department or administration.
Ms. Harbour continued to address housing relief details on
slide 7. She reported that some of the funding for housing
relief had already been received and appropriated via the
RPL process for the Alaska Housing Finance Corporation
(AHFC). She shared that after the process, the Municipality
of Anchorage and tribal governments had approached AHFC to
administer their funding as well. She explained that AHFC
needed program receipt authority to receive and expend the
funding on behalf of the entities. Consequently, OMB had
submitted a budget amendment to give AHFC the authority.
Additionally, ARPA had a number of housing relief
appropriations for emergency rental assistance, mortgage
assistance, the Home Investment Partnership Act, homeless
funds, and emergency housing choice vouchers. She noted
that OMB had submitted a budget amendment for the funding.
9:55:01 AM
Co-Chair Foster believed the Alaska Community Foundation
(ACF) was administering some of the funds as well. He
shared that he had recently spoken with the foundation, and
it was interested in administering some of the ARPA funds.
Mr. Steininger answered that ACF helped administer the $50
million nonprofit grant program that was part of the CRF
distribution.
Co-Chair Foster asked if it had gone smoothly.
Mr. Steininger replied that he believed so.
Ms. Harbour discussed higher education relief funding for
the University of Alaska and the Alaska Vocational
Technical Center (AVTEC) on slide 8. She relayed that the
presentation primarily focused on funding going to state
agencies and through the state budget; however, there were
appropriations in the federal legislation that went
directly to other higher education institutions. She noted
the information was included in Attachment 1. She listed
the entities: Alaska Bible College, Alaska Christian
College, Alaska Pacific University, Ilisagvik College, and
Alaska Career College.
Ms. Harbour clarified that slide 8 only pertained to
funding that went through the budget. She stated that the
CARES Act funding had already been appropriated through the
RPL process. She relayed that CRRSAA and ARPA funding for
higher education required additional appropriation. She
highlighted that the administration had the CRRSAA funding
amount to the university and AVTEC, but the ARPA allocation
was not yet known. She shared a rough total estimate of
$33.5 million that would come to Alaska. She clarified that
how the funding would be distributed to the university,
AVTEC, and the other non-state entities was not yet known.
She added that 50 percent of the $33.5 million had to go to
students. She explained that the institutions would receive
the funding and pass it to students as grants.
9:57:20 AM
Representative Wool stated his understanding that OMB did
not know how much of the $33.5 million would be allocated
to individual universities. He remarked that 50 percent
would go to students. He remarked that the CARES Act had a
percentage for students that he believed was less than 50
percent. He noted that the semester had been disrupted,
classes were canceled, and many students had gone home. He
understood the reimbursement to students. He wondered about
the logic for giving half of the funds to students going
forward. He stated that the institutions were impacted by
lower enrollment and further incurred costs. He wondered if
the funding for students was to pay tuition because the
pandemic was making employment more difficult.
Ms. Harbour answered that the distribution had been set by
the federal government. She did not know the logic behind
the 50 percent to students.
Mr. Steininger addressed K-12 education relief running
through the state budget (slide 9). The CARES Act had
contained $45 million, CRRSAA had $168 million, and ARPA
contained $364.5 million. He noted the ARPA funding would
require additional appropriation. The bulk of the funding
would go directly as grants to school districts through
formulas defined by the federal government. There was a
state maintenance of effort requirement and a maintenance
of equity requirement for the funding. He noted that the
maintenance of equity requirement was new to the ARPA
funding.
Mr. Steininger highlighted that the maintenance of effort
requirement applied to the CARES Act had changed in CRRSAA
and ARPA. He reported that OMB had reached out to the U.S.
Department of Education for more information on how the
requirement should be calculated and applied to the state.
The response had been to hold until the federal government
was able to make the determinations and provide more
guidance. He explained that the state had received very
little guidance on how the maintenance of effort would be
applied to the state. The state had made some assumptions
but had not yet received answers because the federal
government did not yet have the information. The
maintenance of equity was new at the state level. He
remarked that OMB did not see the requirement having a
significant impact at the state level allocations the way
the K-12 foundation formula was distributed; however, there
may be some greater impacts to some districts at the local
level. He noted it was another area without perfect
clarity.
10:01:33 AM
Representative Wool observed that the maintenance of effort
appeared to apply to CRRSAA and ARPA. He asked if the
requirement only applied to funding going through the
state. He wondered if the maintenance of effort requirement
did not apply to funds going directly to the university or
school districts. He asked what percentage of the monies
went through the state versus directly to entities. He
thought most of the funding appeared to be directly from
the federal government.
Mr. Steininger answered that the maintenance of effort
requirement applied only to the funding shown on slide 9.
He explained that maintenance of effort questions applied
primarily to CRRSAA and ARPA. He did not know what the $168
million and $364 million represented as a percentage of
total funding to districts, but the money districts may
receive via impact aid was not impacted by the maintenance
of effort requirement.
Representative Wool had heard that K-12 and higher
education were bundled together to make sure the
maintenance of effort was met. He believed only a
percentage of the funds would be received if K-12 and
higher education were not combined. He understood there was
a lookback for several years. He asked if the lookback
extended back pre-COVID. He asked for detail. He had heard
more money needed to be added to the university (because it
had been cut below a certain level) just to enable K-12 to
have access to substantial federal funding.
Mr. Steininger replied that the CRRSAA and ARPA direct
funding to the university reflected on slide 8 was not
subject to the maintenance of effort requirement. He
clarified that the requirement only applied to the funding
that went to K-12 school districts. However, the
maintenance of effort applied to the state's funding to the
university and K-12. He clarified that the look was at the
overall state spending on education (including K-12, the
university, AVTEC, and other educational institutions the
state spent money on) and applied the maintenance effort as
a requirement to receive the funds.
Mr. Steininger stated it was unclear how the U.S.
Department of Education would address some Alaska-specific
nuances to the state's funding of education. He noted the
nuances impacting other states was also unclear. He
highlighted that there were natural population changes that
occurred, and Alaska had seen outmigration, which could be
seen in the formula and impacted the amount of money going
to education. He shared that OMB had asked the federal
government whether Alaska would be penalized for a natural
decline in the number of students. Additionally, OMB had
asked whether the state would be penalized for agreements
like the university compact that existed prior to the
pandemic. The state had not received definitive answers to
those types of questions. He explained that the basic rules
included a three-year average from prior to the pandemic of
the amount of funding given to education by the state
compared to the same three-year average of total state
spending. The average was compared to the base-year of FY
21 or FY 22. He reported that how the base was calculated
and what the federal government defined as state support of
education was still unclear.
10:06:18 AM
Representative Edgmon discussed maintenance of effort. He
recalled a prior presentation by OMB and a handout that
talked about having to meet certain K-12 funding levels for
FY 17, FY 18, and FY 19. He viewed the funding as matching
funds. He elaborated that the state had to provide a given
amount of matching funding to receive the $365 million. He
understood it was more involved than that. He considered
that the state did not have the full picture. He asked what
the worst case scenario would be if OMB did not receive an
answer back from the U.S Department of Education regarding
the maintenance of effort that the state needed to provide
to get to the $364.5 million. He asked if the state may not
be eligible to receive the funding. Alternatively, he
wondered if the state would only get part of the funding if
it did not come up with the maintenance of effort or
matching portion from the state.
Mr. Steininger replied that OMB had asked the U.S.
Department of Education what the repercussion was for not
meeting the maintenance of effort. He shared that one thing
the state had experienced with all three pots of federal
money coming in for school districts was that the money had
been sent to the state to allow districts to draw down on
the funds prior to giving guidance on the maintenance of
effort. The federal government had not provided information
on the actual repercussions of missing maintenance of
effort. He did not want to speculate on the possible
repercussions given that the U.S. Department of Education
was unable to provide the answer.
10:08:54 AM
Representative Edgmon asked for verification that funds
were flowing through school districts even though slide 9
specified an additional appropriation was required.
Mr. Steininger responded that the money flowed to school
districts through the state. In a normal year, the state
Department of Education and Early Development (DEED) had
over $100 million in appropriations of federal receipts for
normal federal programs. He explained that the $364 million
would need to be an increase to the appropriation. He
shared that OMB would be submitting an appropriation
request for the change. He added that OMB had been waiting
on the additional information from the U.S. Department of
Education prior to submitting the appropriation request
because the agency believed it was important for the
legislature to know the maintenance of effort requirements
in order to make an informed decision.
Representative Edgmon referenced OMB's questions to the
federal government regarding maintenance of effort. He
asked if it was all operating budget related.
Alternatively, he asked if school bond debt reimbursement
could be considered maintenance of effort. He clarified his
question and asked if OMB knew whether the state had to
provide a given amount for the K-12 education foundation
formula to meet the maintenance of effort or whether other
funds could be involved.
10:10:17 AM
Mr. Steininger replied that there was some understanding
that capital expenditures in education were not allowable
for part of the state's funding to education. He assumed
school bond debt reimbursement would qualify as a capital
expenditure given what the money was originally spent on.
He stated that whether school bond debt reimbursement would
be part of the maintenance of effort requirement was in the
gray area. He believed there were one or two other
restrictions.
Ms. Harbour expounded that the federal restrictions
specified that state funding shall not include support for
capital projects, research and development, or tuition fees
paid by students.
Representative Wool considered that the maintenance of
effort requirement also applied to CRRSAA funding, which
had been dispersed. He thought it sounded like there was no
retroactivity and the federal government could not say the
state did not maintain maintenance of effort. He asked if
the state was in the clear with CRRSAA funds spent.
Ms. Harbour answered that OMB did not know whether the
state would have to pay back the $168 million if it missed
maintenance of effort on the CRRSAA funding.
Representative Carpenter looked at the yellow sections in
Attachment 1 indicating that additional appropriations were
required. He asked if the required appropriations were only
a request for additional federal receipt authority or a
more detailed appropriation.
Mr. Steininger answered that many of the grants would only
require a request for additional receipt authority. For the
larger $1 billion state and community relief fund, the use
of the funds would require more specific appropriations
because it was not a passthrough grant with tight
restrictions from the federal government.
Representative Carpenter referenced Representative Edgmon's
earlier questions related to the timing the federal
guidance would be received near the end of session. He
stated it would be helpful to understand which of the items
highlighted in yellow would be a receipt authority solution
and which would require more detailed legislative action.
He explained it would enable the legislature to better
manage its time and understand the scope of time required.
10:13:44 AM
Representative Josephson discussed the university and the
compact [agreed upon by the governor and the university].
He believed the state provided a grant of $327 million the
year before the compact began. He elaborated that the
funding had been decreased to around $302 million in the
first year of the compact, which was before anyone had
heard of COVID-19. The pandemic had begun in the second
year of the compact when funding had been reduced to $277
million. He asked if the federal Department of Education
could say that the reduction violated the state's
maintenance of effort requirements.
Mr. Steininger agreed that it was a question. He elaborated
that OMB had asked the question directly to the U.S.
Department of Education and had not yet received a
response. He informed members there was an opportunity to
request a waiver to the maintenance of effort requirements,
which the state planned to do. He noted that what would be
considered for a waiver had not yet been laid out by the
federal government. He shared that OMB had discussed the
compact with the federal agency and had provided
information about its existence prior to the pandemic and
how the state utilized federal relief to assist the
university with lost revenues and other impacts due to
COVID. He added that discretionary federal relief could not
be applied to the maintenance of effort. He stated that the
compact with the university would be part of the state's
waiver request to the U.S. Department of Education to
explain it had existed prior to the pandemic and was not a
reduction in state support for education as a response to
the pandemic.
10:16:11 AM
Ms. Harbour clarified that the traditional maintenance of
effort requirement under the CARES Act was dollar focused.
She explained that if $100 million was paid, $100 million
had to be paid within the year. She elaborated that under
CRRSAA and ARPA the requirement specified that if a state
spent 30 percent of its state funding on higher education,
it was required to spend 30 percent of state spending on
higher education in FY 22 and FY 23. She underscored that
the amount would not be $27 million or $40 million, but 30
percent of the overall state funded budget. She noted that
the amount could swing significantly depending on how state
funds were invested. She explained that a number of states
were having problems with the requirement because they put
substantial funding into community relief or health and
social services, which skewed the percentage. She stressed
that it was not possible to say the state had cut the
university by $27 million. She elucidated that the size of
the hole depended on the size of the total budget for FY 22
and FY 23.
Representative Josephson stated that while he appreciated
that the administration may seek a waiver, he and a number
of others did not want the waiver because they did not
believe in the compact. Some solace had been taken in the
compact, but it was not what a number of people had wanted
because it had circumvented the legislature's role.
Representative Edgmon remarked that the Permanent Fund
Dividend (PFD) was part of the appropriation process as
well, which was an additional thing to think about when
considering the demands of CRRSAA and ARPA regarding
maintenance of effort.
Representative Wool asked for verification that the three-
year lookback for maintenance of effort preceded COVID. He
surmised it meant the federal government wanted to look at
what the state had been funding historically as a
percentage of the total budget to make sure the state was
maintaining the same percentage.
Mr. Steininger agreed that the federal government was
looking at a period of time prior to the pandemic as a
baseline to set the percentage going to education.
Representative Wool stated the compact had been agreed to
because the university had been looking at a $135 million
cut or around 45 percent in one year. He remarked that the
proposed cut had made national news because although many
state universities across the country were facing cuts, the
cut was the largest any state university had ever faced. He
stated it was ironic that if the cut had been accepted
there would have been no further cuts and the three-year
lookback may actually look better. He was glad the compact
had been chosen over the larger cut. He did not know
whether one of the three years within the lookback was
prior to the compact, but he noted the compact showed a
radical reduction. He remarked that other states had likely
cut overall state spending as well. He asked if the PFD was
included as part of the total budget. He reasoned that a
larger PFD would put everything else at a lower percentage
relative to the overall state budget. He asked if the PFD
was part of OMB's calculation.
10:20:05 AM
Mr. Steininger answered that OMB had asked the U.S.
Department of Education whether the PFD would be considered
part of the calculation. Based on calculations done by OMB
the inclusion of the $680 million appropriation for the PFD
did not significantly change the numbers in terms of using
current appropriations in FY 21 as a comparison year.
Mr. Steininger moved to slide 10 and reviewed additional
ARPA education relief details. He stated there was some
guidance on how the money was spent. He highlighted that
slightly over $500 million would go directly to school
districts. The slide provided information on federal
direction on how the state could allocate the funding. He
pointed out that at least 90 percent of the funding would
go directly to school districts or local education agencies
as referred to in the federal legislation. The federal
government had identified that allocations would go to
address learning loss, summer enrichment programs,
afterschool programs, other state activities, and
administration. He noted the funding for the first three
aforementioned items were to receive at least a certain
percentage and the amount identified for the last two items
was "at most" a given percentage. The vast majority of the
funding coming in through ARPA would go to help classroom
activities and students throughout the state.
10:22:16 AM
Mr. Steininger looked at slide 11 showing all of the
various funds coming into the Department of Transportation
and Public Facilities (DOT). The top of the slide showed
three funding categories including the Federal Aviation
Administration (FAA), the Federal Transit Administration
(FTA), and the Federal Highway Administration (FHWA).
Included under each of the categories was funding received
under the CARES Act, CRRSA, and ARPA. He noted that OMB was
not yet certain how much FAA money was coming into the
state under ARPA.
Mr. Steininger detailed that each of the federal relief
acts and federal entities had slightly different rules
surrounding the money. He stated that tailoring the way the
state utilized the transportation funding between the
different acts was a complex process. He highlighted that a
moderately large sum of money from the CARES Act had
previously been allocated through the RPL process. The
administration had also suggested appropriations in the
governor's budget to utilize some of the FAA money to
offset general fund expenditures in highways and aviation
within DOT. He noted that within the $27 million in FAA
funds under CRRSAA approximately $12 million was identified
for specific airports.
Mr. Steininger noted it was a slight difference from the
CARES Act funding, which had been allocated based on
airport, but how the funds were spent was open-ended. He
explained there were varying levels of restriction within
the DOT funding, meaning figuring out which money went to
what activities was complicated. He informed the committee
there was a large portion of funding remaining for
distribution that OMB had not yet put forward appropriation
requests, including approximately $120 million in FHWA, $58
million in FTA, and $38 million in FAA. He remarked that
the money could be used over the course of several fiscal
years, which enabled an operating budget offset in the DOT
budget for longer than one fiscal year. He noted other
restrictions shown near the bottom of slide 11 in terms of
money that had to pass through to the Municipality of
Anchorage or had to be spent at specific airports for
specific airport operations.
10:25:31 AM
Ms. Harbour addressed ARPA relief funding estimates for
various programs within DHSS (slide 12). She relayed that
OMB did not know the amounts for each of the programs. The
funding would require an appropriation to receive and
expend. She detailed that OMB was waiting for additional
[federal] guidance. She reported that DHSS was working
diligently to analyze the programs. She explained that for
many of the grants like the childcare development grants,
the funds were meant to supplement the current year's
budget. She highlighted it was not possible to supplant the
normal UGF budget with the funds.
Co-Chair Foster thanked the presenters.
10:26:58 AM
AT EASE
10:33:27 AM
RECONVENED
^PRESENTATION: AMERICAN RESCUE PLAN ACT OF 2021:
LEGISLATIVE FINANCE DIVISION
10:33:27 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
presentation titled "American Rescue Plan (ARP) Provisions
for Alaska: House Finance Committee," dated April 8, 2021
(copy on file). He began on slide 2 and planned to discuss
items not requiring legislative appropriation, funds with
significant flexibility, and funds with limited or no
flexibility. He moved to slide 3 and reviewed ARPA funds
not requiring state appropriation:
• $1,400 Direct Payment to Alaskans estimated total
of
$847.3 million (600,000 Alaskans)
Phases out starting at $75,000/$150,000 income for
individual/household
• Estimated $1 billion total available for tribal
governments
Mr. Painter elaborated that the tribal funding included a
primary increment of $600 million and several others. He
noted that the state did not know the exact details on all
of the amounts, but the [$1 billion] number had been in the
media. He continued to review slide 3:
• Tax code changes to Child Tax Credit (expanded to
$3,000 per child ages 6-17, $3,600 per child under
6, credit made fully refundable), Earned Income Tax
Credit
• Additional funds for Paycheck Protection Program
• Direct funding to rural health providers
Mr. Painter noted that the Child Tax Credit had been
expanded from $2,000 per child ages 6 through 17. He
described the Paycheck Protection Program as a loan program
for small businesses. He stated there were quite a few
areas of funding that would influence the amount available
in the economy in Alaska that were not necessarily going
through the state budget.
10:36:06 AM
Mr. Painter moved to a pie chart on slide 4 "Over $2
billion allocated to state of Alaska and Local
Governments." He detailed that about half of the $2 billion
was the State Fiscal Recovery Fund shown in blue, which was
more flexible. Additionally, there was $112 million in
flexible capital funds and $230 million for local fiscal
recovery. The other items in the pie chart reflected
specific areas with less spending flexibility. He noted
that the chart only included items with a known funding
estimate. He relayed there were about $2.1 billion of known
amounts that would go through the State of Alaska or direct
to local governments.
10:37:11 AM
Mr. Painter turned to slide 5 and discussed the State
Fiscal Recovery Fund, estimated at $1,019,259.4 for Alaska
to be allocated 60 days from when state submitted a
certification to Treasury. There was flexibility allowing
the secretary of the Treasury to withhold half of state
allocation for 12 months based on the unemployment rate of
each state. He noted it was unclear what would trigger the
withholding of a portion of the funding and whether it was
a high or low unemployment rate was unclear. He speculated
that the funds would likely not be withheld due to Alaska's
relatively high unemployment rate. He highlighted that the
fund could be used on expenses incurred through December
31, 2024.
Mr. Painter continued to review slide 5. The slide included
language from the federal legislation describing eligible
uses of the funds. He stated that while Alaska was waiting
on treasury guidance for more clarity on the items, he
believed many of the basics were already outlined. He
believed the list of eligible uses could provide some ideas
on ways the state may be able to use the funds. He read the
first eligible use as defined in the federal legislation:
Eligible uses of funds include:
(A) to respond to the public health emergency with
respect to the Coronavirus Disease 2019 (COVID19) or
its negative economic impacts, including assistance to
households, small businesses, and nonprofits, or aid
to impacted industries such as tourism, travel, and
hospitality
Mr. Painter elaborated on the first eligible use and
explained that it could take the form of something similar
to the $290 million RPL for the small business grant
program in 2020. He stated that there was specific funding
going to many of the public health items, but items without
a specific grant could also be used under the statute. He
noted the next item pertained to premium pay to essential
workers:
(B) to respond to workers performing essential work
during the COVID19 public health emergency by
providing premium pay to eligible workers of the
State, territory, or Tribal government that are
performing such essential work, or by providing grants
to eligible employers that have eligible workers who
perform essential work;
Mr. Painter highlighted the third eligible use included the
revenue replacement clause:
(C) for the provision of government services to the
extent of the reduction in revenue of such State,
territory, or Tribal government due to the COVID19
public health emergency relative to revenues collected
in the most recent full fiscal year of the State,
territory, or Tribal government prior to the
emergency; or
Mr. Painter expounded that the language could pertain to
something like the state itself. He explained that the
state had significantly lower revenue projected in FY 22
than received in FY 19, much of which was due to oil
prices. In FY 19, oil prices had been a bit over $69 per
barrel and were projected to be in the low $60s. He
remarked that the state's revenue was several hundred
million lower. He stated that the eligible use could apply
to specific taxes. For example, the state was not
anticipating any cruise ships in the coming summer;
therefore, the state could supplement the commercial vessel
passenger tax revenue that went to local communities. He
remarked that it would be eligible for FY 21 as well when
there had been no cruise ships. Additionally, it could
likely apply to items like the vehicle rental tax where the
tax had been down due to the lack of visitors in 2020. He
reviewed the last eligible use item:
(D) to make necessary investments in water, sewer,
or broadband infrastructure.
Mr. Painter highlighted two things in the bill identified
as ineligible. Funding could not be used to offset revenue
losses caused by changes in state law or regulations. He
referenced a couple of instances in 2020 under the
emergency disaster declaration, where certain taxes and
fees were suspended or delayed. He noted the items would
not be eligible for revenue replacement where the state had
made the decision to reduce taxes or fees. Additionally,
the federal funds could not be deposited into any pension
fund including the Public Employees' Retirement System
(PERS) and Teachers' Retirement System (TRS).
10:41:12 AM
Co-Chair Merrick asked if the Paycheck Protection Program
or the Small Business Loan Program had been turned into
grant programs in the past. She asked if the new funding
would be eligible for the same purpose. She asked if it was
a state or federal decision.
Mr. Painter answered that the federal Paycheck Protection
Program was a loan that could be forgiven under certain
circumstances. He believed a portion or all of the funding
could be forgiven if it was used for payroll. He detailed
that the state program had originally been discussed as a
loan program, but it had been converted into a grant
program. He elaborated that the $290 million had been a
grant program. He relayed it was likely a similar program
would be eligible again as the [federal] language was
fairly similar. He noted that how it was determined would
be up to the legislature as the appropriating body. The
legislature could appropriate funds with a lot of strings
enabling only particular types of businesses to qualify.
Alternatively, the legislature could make the funds
available to any business with lost revenue.
Vice-Chair Ortiz referenced the first bullet point on slide
5 related to the $1.019 billion coming to the state. He
observed that the funds would be allocated to Alaska 60
days after the state submitted a certification to Treasury.
He asked if the state had already submitted the
certification.
Mr. Painter replied it was his understanding that the
certification had not yet been submitted by the state. He
explained that the state did not yet know what the language
meant. He noted that the state had received some of the
education funds but had not yet physically received the
money [from the State Fiscal Recovery Fund].
Vice-Chair Ortiz referenced language on the slide under the
first bullet point, which specified the Treasury may
withhold half of the allocation for 12 months. He asked how
and when the state would know whether it would receive all
of the funding in one or two tranches.
Mr. Painter believed it was one of the questions on OMB's
list sent to the federal government. He noted that the
National Conference of State Legislatures (NCSL) had
compiled a similar list of questions sent to the federal
government. He believed the answer to Vice-Chair Ortiz's
question was the state would wait and see.
10:43:54 AM
Representative Edgmon asked about the 60 days and
certification process. He referred to the federal
guidelines that would be available on May 10. He remarked
there were many lessons learned on the state and federal
end in 2020. He asked about Mr. Painter's sense in terms of
the ability to craft or meld the money into the legislative
budgetary process. He asked if there would be enough
information on May 10 vis-a-vis the certification process.
He highlighted that Alaska was the only state with a
Permanent Fund Dividend (PFD).
Mr. Painter replied that he had a slide on considerations
on timing and process. He asked to hold the question until
that time.
Representative Carpenter asked who was responsible for
submitting a certification to Treasury.
Mr. Painter believed it would be someone in the executive
branch, whether it be OMB or another entity.
Representative Thompson asked if any of the ARPA funds
could be used to supplant the UGF funds in the state's FY
22 budget.
Mr. Painter confirmed that funds could be supplanted
through the revenue replacement clause to the extent that
the state's FY 22 revenue was lower than in FY 19. He noted
that the federal guidance would specify how the calculation
should be made. He stated that with oil prices being
several dollars down, it meant the state would have
hundreds of millions of dollars less tax revenue;
therefore, it could swap out hundreds of millions of
general government expenditures if desired. The exact
number was not known because the state did not yet have the
detail on how to make the calculation. He informed members
that in terms of non-percent of market value (POMV) UGF
revenue, the state was projected to be over $900 million
lower in FY 22 than in FY 19. He stated that FY 19 had been
the most recent peak revenue year; therefore, if it could
be used as a peak the state would have a lot of room. The
state would not have to go hunting for things that may be
eligible if it could use the general revenue replacement
clause. He reiterated that the state did not yet have the
guidance on how to make the calculation. He added that the
state would not want to offset something like education,
which would cause problems with the maintenance of effort
requirement. He stated there may be areas where a simple
revenue replacement swap could be used. Once the guidance
was received, it would be easier to have a better handle on
the situation.
10:47:15 AM
Representative Wool asked about revenue loss. He remarked
that the price of oil was higher in 2019 than its current
price. He asked if the decline had to be linked to COVID.
Mr. Painter answered there was nothing in the bill
indicating whether that would be true. He believed the
guidance would provide clarity. He reasoned that the
state's revenue in FY 22 was clearly lower than revenue in
FY 19. He thought it would require an economics Ph.D. to
untangle whether the oil market [decline] was because of
COVID. He was not sure the state would be held to that
standard of figuring out what degree the oil price decline
was due to COVID.
Representative Wool asked if there was a list of who
qualified as essential workers. He highlighted examples of
workers who he considered essential such as plumbers and
grocery store clerks. He asked if essential workers were
considered to be in the health and public safety category.
Mr. Painter replied that he believed federal guidance would
spell out the federal definition. He remarked that the
federal definition may or may not be similar to the state
definition.
Representative Johnson thought one of the things they were
trying to figure out was how the funding would potentially
fill the state's fiscal gap for the coming fiscal year. She
asked what kind of impact the CARES Act had on the FY 21
budget. She remarked that the state had until FY 24 to
spend the ARPA funds. She stated the big issue in her mind
was how much the federal funding would help the state. She
highlighted that the fix was temporary.
10:50:07 AM
Mr. Painter answered that how much the funds could be used
for revenue replacement was largely a decision up to the
legislature. He listed questions for the legislature to
consider including whether lapsing as much money into the
Constitutional Budget Reserve (CBR) in FY 21 to reduce the
budget in FY 22 through FY 24 was one of the goals. Other
questions included how much the legislature wanted to do at
present versus in the future for various programs. He
relayed that $1 billion was not enough to make up revenue
losses for a five-year period of FY 21 through FY 24. He
informed members that the entire amount could be spent on
revenue replacement if that was the goal.
Representative Johnson observed that some planning could
make the funding more effective moving forward as the
legislature addressed existing challenges.
Representative Josephson asked if the legislature
appropriated half of $1 billion and put the other half
billion in the Statutory Budget Reserve (SBR). He provided
a hypothetical situation where the governor vetoed the
funds put in the SBR. He asked if the governor could then
submit RPLs for the $500 million to LB&A.
Mr. Painter answered that it depended on what the RPL
language in the budget said. He elaborated that the version
adopted in HB 205 for FY 21 would likely apply because the
revenue under discussion would have been received in FY 21.
He detailed that HB 205 specified that the governor could
submit RPLs for new federal money. He relayed that when the
prior administration wanted to pursue Medicaid expansion
and the legislature was not supportive, the legislature had
changed the language in the budget to specifically state it
could not be used for Medicaid expansion. He remarked it
had been a special case where the legislature had ended up
losing the lawsuit. He clarified that the RPL language
appropriated additional federal receipts received compliant
with the RPL process in statute. He explained that the
legislature could limit the appropriation just like any
other. He stated that the legislature had not limited the
RPL process in the current budget, but it had the option.
He highlighted that the RPL process was statutory and could
be changed.
10:53:32 AM
Representative Josephson thought it was very important
information. He believed Mr. Painter was saying that the
RPL statute did not stand alone and needed direction from
the budget. He surmised that the governor could not
independently cite the statute and say he would issue RPLs.
Mr. Painter replied that it was his understanding; however,
as seen the previous year, the governor had been able to
submit RPLs. He noted that Legislative Legal Services did
not think it was allowable under statute. He continued that
the RPLs could be submitted and approved by the [LB&A]
committee. He noted someone could sue if they did not think
the action was legal, which had occurred in 2020. He stated
there was nothing stopping the governor from doing so,
other than a lawsuit.
Co-Chair Foster asked if the language allowing or
disallowing the RPL process was in the capital budget.
Mr. Painter replied that the language was in the operating
and capital budgets. He elaborated that because there had
been a single omnibus bill in 2020 it had only been
included the one bill. He relayed that the language was
included in both bills for FY 22 and was very similar.
Representative Josephson referenced his hypothetical
example and thought that if the $500 million appropriation
to the SBR was vetoed that the funds would remain in the
General Fund. He surmised that would not be much different
than if the funds were in the SBR.
Mr. Painter did not know whether appropriating the funds to
the SBR would be allowable because it was a state savings
account. He highlighted that the state had four years to
spend the funds and he did not believe the federal
government expected the state to get all of the funding out
the door in year one.
Mr. Painter moved to slide 6 titled "Capital Projects
Fund." He reported the state was estimated to receive $112
million from the Capital Projects Fund. He explained that
the state had to apply for the funds. He clarified that
presumably the legislature would appropriate the money for
a given purpose and the administration would apply for the
funds. There was no expenditure cutoff date in ARPA, but he
anticipated Treasury would include a limit for practical
purposes. The only current guidance from the federal
government regarding eligible purposes was included in the
last bullet point on the slide. He read the bullet point:
Can be used "to carry out critical capital projects
directly enabling work, education, and health
monitoring, including remote options, in response to
the public health emergency with respect to the
Coronavirus Disease (COVID-19."
Mr. Painter was hopeful there would be more detail
available on May 10 in terms of what projects would be
eligible for the funding. He reiterated his earlier
statement that the state would have several years to get
the funding out; therefore, if uses for the funding had not
been identified by May 10 it did not mean the state would
lose the money; it could be determined in future sessions.
Representative Wool referenced the third bullet related to
the allowable use of the funds on slide 6. He asked if the
project created work, it would be a legitimate use of the
funds. He added that creating work was inherent in most
projects.
Mr. Painter answered that he did not have anything beyond
the sentence to go on.
Representative Wool referenced Mr. Painter's previous
statement that he did not believe the money could be put
into the SBR. He asked for verification that the state
could put any unused portion of the money in an account. He
asked if the state did not want to spend the funding
whether it could be put into a capital fund. Alternatively,
he asked if the funding would have to sit in the General
Fund.
Mr. Painter replied that the SBR was essentially the
General Fund, it was merely a named account within the
General Fund. He explained that CARES Act funds had sat in
the General Fund as they were spent down. He stated it
could happen with the ARPA funds as well. He noted it was
not necessary to park the funds someplace else in the
meantime.
10:58:42 AM
Vice-Chair Ortiz referenced the ability to use the funding
to carry out critical capital projects. He asked if the
funds could be used for the lengthy and growing list of
deferred maintenance on school buildings throughout the
state.
Mr. Painter answered affirmatively as long as the projects
complied with the requirement that the projects be in
response to the public health emergency. He stated if there
was some nexus the projects were needed to enable education
in response to COVID-19, it would qualify. He did not
believe projects with no nexus to COVID-19 would qualify.
He did not know how narrow or broad the definition may be.
Representative LeBon referred to Representative Josephson
and Representative Wool's questions regarding the SBR. He
asked for clarification on a scenario where the state spent
half of the $1 billion and held onto the remaining half for
future budget cycles in the SBR. He asked if the funds
would be subject to the sweep into the CBR. He asked if the
funds would go into the CBR or remain in the SBR.
Mr. Painter replied that if the funding was left in the
General Fund, it would not be subject to the sweep because
it was federal money.
Representative LeBon asked for verification that the
funding did not necessarily have to go to the SBR to
protect it for future use.
Mr. Painter agreed. He added that the SBR was subject to
the sweep; therefore, the funds would not be protected in
the SBR.
11:00:53 AM
AT EASE
11:01:12 AM
RECONVENED
Mr. Painter moved to slide 7 considering timing and
legislative direction. He provided a refresher on how the
legislature had handled the CARES Act funding in 2020. He
clarified that the funding did not all go through the RPL
process. He explained that specific language had been put
in the budget allowing open-ended federal receipts to be
received in the Division of Public Health for workforce
training in the Department of Labor and Workforce
Development (DLWD) and for the Unemployment Program. He
detailed that the language in the Division of Public Health
specified that any federal funds received in FY 20 could be
spent over FY 20 and FY 21 related to COVID. He noted there
had been a $9 million estimate, which had turned out to be
low. The CARES Act funding included over $300 million in
the Coronavirus Relief Fund (CRF) that went out to
nonprofits, state agencies, and the Division of Public
Health through the division.
Mr. Painter expounded that the DHSS commissioner had
approved some requests by another agency, which referred to
the specific receipt authority that allowed the unlimited
amount in addition to specific grants. He explained that
hundreds of millions in flexible funds went through the
language in addition to less flexible funds. He clarified
that the RPLs were for areas that could not go through that
same process. The RPL process was used for things like the
Small Business Program and the money going to local
communities. He noted it had been a legislative decision to
grant the open-ended appropriation to the Division of
Public Health; the funding had been included in the mental
health budget and had been requested by the governor as a
supplemental and granted several days later. The action
gave the administration substantial flexibility.
Mr. Painter stated there was a tradeoff in the action of
offering the administration flexibility. The more narrowly
the legislature appropriated the funds, it was more
difficult to do quickly and more likely a special session
would be required if the guidance changed, or a new need
arose. He explained that providing flexibility as the
legislature had done the previous year, delegated the
decision making to the governor. He noted the legislature
had heard a lot about the $45 million in unallocated funds.
He explained it was because the legislature gave the
administration receipt authority enabling the
administration to spend as much as it received. He advised
that if the legislature did not want the situation to occur
again, it needed to provide more strict language. However,
if the legislature felt the flexibility was justified and
the right way to go, it could provide blanket language. The
amount of flexibility the legislature gave the governor was
a policy choice and a tradeoff.
Mr. Painter stated there were a number of goals the
legislature may want to achieve with the funds. He
explained that the legislature could choose to focus on
helping the economy with things like premium pay, grants to
unemployed workers, and grants to businesses and nonprofits
in the short-term. The legislature could choose to focus on
investing in long-term items such as water and sewer
projects or economic development. Alternatively, the
legislature could choose to focus on maintaining state
budget reserve levels by using funding primarily as revenue
replacement. The legislature could decide to pass funding
to local governments. He remarked that AML had stated there
was hundreds of millions of dollars in lost revenue in
local governments and the funds going directly to
communities would not be sufficient to replace the loss. He
relayed it was up to the legislature as the appropriating
body to decide on its priorities. He stated that the
governor would come forward with his amendments; the
legislature could wait for the amendments or do it itself.
He underscored legislators were the appropriators and could
decide on the priorities to include in the budget.
11:05:58 AM
Representative Johnson referenced $9 million in CARES Act
funding the state had received that the governor had been
able to spend as he saw fit. She asked how the $9 million
had changed the FY 21 budget in terms of revenue
replacement.
Mr. Painter answered that it was currently unclear because
the legislature did not know how the last $45 million would
be spent. He stated if it was spent on creating lapsing
funds it would be used for reductions of UGF. He stated
that generally the hundreds of millions that went through
the $9 million appropriation that was really over $400
million went to needs that prevented supplementals in some
cases and created FY 20 lapse. Generally, it was not seen
in the budget creating the lapse, but the lapse report
received from OMB had several million in specific areas
where some may be due to the funds. He believed the full
effect of the size of the lapse would not be known until
the last $45 million was expended.
Representative Johnson referenced the $45 million that went
through the CARES Act and RPL process. She asked for
verification that the funds were still under the authority
of the administration.
Mr. Painter replied in the affirmative. He explained that
the administration had received the funding under the open-
ended language specifying that anything the Division of
Public Health received in FY 20 the administration could
spend in FY 20 and FY 21.
Representative Johnson asked how the administration
accounted back to the legislature for the expenditure of
the funds since they had not been appropriated by the
legislature in the traditional sense. She asked if the
tracking was just through actuals in the budget. She
thought it had been difficult to track how the
administration was spending the money. She asked if the
administration was putting out any reports on the spending.
11:09:08 AM
Mr. Painter answered in the affirmative. He relayed that as
part of the 2020 disaster declaration there was a reporting
requirement where monthly reports were sent to legislators.
He expounded that the information continued to be provided
even after the requirement ended. Additionally, the
information was on the OMB website with monthly
expenditures on COVID-19 from all sources.
Representative Johnson remarked that even though the
legislature was receiving the reports, there was still
significant uncertainty around the numbers that were
continuing to shift. She supposed it was a matter of giving
it a bit of time. She stated that a substantial amount of
money was coming in quickly and it was difficult to make
decisions when it was not entirely clear where everything
stood. She hoped they would do better in the future.
11:10:19 AM
Mr. Painter discussed local fiscal recovery funds estimated
at about $230 million on slide 8. He stated it was unclear
which of the funds required an appropriation and which of
the funds would go directly to local governments. He noted
Anchorage would receive at least some of its money
directly. He noted beyond that, there were some differences
in interpretation that would hopefully be worked out in the
near future. He emphasized that the allocation was a
federal formula almost entirely based on population. He
detailed that 44 percent of the $230 million would go to
Anchorage. He pointed out that in contrast, when the state
had allocated $568 million to local governments, it had
been distributed based on a state formula that resulted in
28 percent going to Anchorage. He explained that the
federal payments were strictly based on population, which
meant some of the communities with high revenue losses were
not made whole, while some communities without high revenue
losses were more than made whole because they had higher
populations. He believed the committee had heard from AML
the previous week that for many local governments with
higher revenue losses and lower populations, the $230
million would not be sufficient to pay the bills.
Representative Wool highlighted places including the Denali
Borough and Skagway that were heavily impacted. He remarked
that there were other monies discussed in the presentation
out of the $1 billion that communities would be eligible
for if they had revenue loss due to COVID.
Mr. Painter answered that it was not a given the $1 billion
would go to that purpose. He explained that the legislature
would have to choose to do so.
Representative Wool stated his understanding that the
legislature could choose to appropriate additional money
beyond population formula to certain communities
disproportionately impacted by COVID.
Mr. Painter agreed that it was an option available to the
legislature.
11:13:06 AM
Representative Edgmon looked at slide 7. He discussed that
that the RPL process laws had been passed in the late 1970s
and possibly the early 1980s. He remarked that the laws
were antiquated and never contemplated the enormity of the
[federal] money coming into Alaska as was occurring
currently. He observed that based on Mr. Painter's comment,
the legislature had a lot of say in what the governor could
or could not do once session ended. He stated that a
Department of Law attorney and a Legislative Legal Services
attorney may have two different opinions on what the
administration could do unilaterally outside of the
legislature being in session. He thought it should be
included in the category of things that were not known. He
remarked on the title revised program language and noted
that no one in the current era really understood what it
meant. He noted the word revised indicated some tie-in back
to the budget process. He stated there were more questions
about the RPL aspect setting everything else aside in
relation to the avalanche of incoming federal funding.
Mr. Painter moved to slide 9 and discussed items with
limited flexibility. He noted that OMB had covered the
items and he would not go through each item on the list. He
detailed there was approximately $170 million in known
funding coming in for DHSS. He stated that the legislature
could choose whether to give the department receipt
authority for $170 million or keep it open-ended as had
been done the previous year.
11:15:29 AM
Mr. Painter discussed education items with limited
flexibility on slide 10. He reported that at least 90
percent of the incoming federal funding for K-12 schools
had to go to school districts. There were some allocations
for particular purposes that specified maximum or minimum
amounts depending on the item. Additionally, there was
funding that may not pass through the state, which was
designated for non-public schools, higher education, and
specific education functions like museums, libraries, the
Alaska Council on the Arts, and Head Start.
Vice-Chair Ortiz referenced a maximum of 2.5 percent for
other state activities shown on slide 10. He asked for a
definition of other state activities.
Mr. Painter replied that he did not know.
Mr. Painter moved to slide 11 and continued to discuss
education items with limited flexibility. He referenced the
substantial discussion on the maintenance of effort and
maintenance of equity earlier in the meeting. He emphasized
there was a waiver process, and the state did not know when
it would know whether it would have a waiver. The waiver
was designed for states with disproportionate revenue
impact. He relayed that Alaska had the highest revenue
impact in the country; therefore, if any states received a
waiver, he believed Alaska would be included. He added that
the consequences of the waiver were not fully known. He
detailed that two-thirds of the Elementary and Secondary
School Emergency Relief (ESSER) funding would be received
immediately. The state would have to apply for the
remaining one-third and would have to include state
certification of compliance with the maintenance of effort
or an approved waiver. The state did not yet know if it
would receive the remaining one-third of the funding if it
did not qualify. He explained that with the CRRSAA funding,
the state had received all of the funds before the waiver
process had started. He relayed it was very uncertain what
the consequences would be of failing to get a waiver and
not being able to meet the provision.
11:17:56 AM
Representative Wool referenced Mr. Painter's statement that
Alaska had suffered the most impact. He thought much of the
impact the state had felt was due to the absence of a
broad-based tax. He remarked that some states with a sales
and income tax saw a boon from COVID due to increased
taxable online sales and increased taxable stock dividends.
He was not certain unemployment checks in Alaska were taxed
as income. He had seen maps showing Alaska was way off the
chart, but much of it had to do with the state's lack of
revenue recouperation and not so much that the state's
economy was any more impacted than others. He asked whether
it was Mr. Painter's understanding.
Mr. Painter agreed that the state's lack of revenue
diversification had contributed to the situation. He noted
that Institute of Social and Economic Research (ISER) had a
slide in a previous presentation showing that personal
incomes in Alaska had increased in 2020. He explained that
if the state had an income tax, it would not have seen the
collection change much due to all of the federal money that
went directly to individuals. He relayed that the
projection of oil prices at $61 per barrel instead of the
$69 per barrel in FY 19, meant Alaska's revenue was
significantly lower because of the state's reliance on oil
as a revenue source.
Representative Wool surmised that the drop in oil price had
impacted Alaska more than other states including Oklahoma
and Texas. He understood the aforementioned states were on
the list of high impact; however, they had been able to
recuperate some of the revenue. He asked if the $300
million for education could displace operating budget
monies. Alternatively, he asked if the funds had to be in
addition to operating budget funds.
Mr. Painter answered that if the state used the funds to
displace operating budget money, Alaska would likely fail
the maintenance of effort because it was specifically tied
to non-federal funds.
Mr. Painter moved to slide 12 and discussed items in other
agencies with limited flexibility. He stated there was more
money coming in on the Federal Transit Administration
infrastructure grants. He detailed that some of the funds
may go directly to Anchorage and Fairbanks and $2.7 million
would come to the state for rural areas. Additionally,
there was funding coming in for the Alaska Housing Finance
Corporation and emergency management grants to the
Department of Military and Veterans Affairs. Additionally,
there would be another federally funded unemployment
compensation boost that would go through the state-run
program. The federal bill added a $300 per week
supplemental payment through September 6, 2021 and changed
the federal tax law so the first $10,200 of unemployment
benefits would be nontaxable income for households with
adjusted gross income up to $150,000. He noted typically it
was a taxable income source. As with the previous expanded
federal unemployment payments, self-employed and
contractors were eligible for the payment even if not
eligible under normal state rules. He noted the funds would
go directly through the state's program but would not
directly impact the state's budget.
11:21:41 AM
Representative Josephson looked at slide 5 related to
eligible uses (of the state fiscal recovery fund), which
included assistance to households. He asked if the federal
government would tolerate Alaska paying a PFD under the
clause.
Mr. Painter answered that he did not know. He stated that
one of the questions was whether the payments had to
specifically be to households impacted by COVID. He relayed
that it was something the guidance may be able to clarify.
Co-Chair Foster thanked Mr. Painter for his presentation.
He reviewed the schedule for the afternoon meeting, which
would begin at 2:00 p.m.
ADJOURNMENT
11:23:03 AM
The meeting was adjourned at 11:23 a.m.