Legislature(2021 - 2022)ADAMS 519
06/08/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Fy 22 10-year Plan Office of Management and Budget | |
| Presentation: Analysis of Governor's Fiscal Plan by Legislative Finance Division | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
FIRST SPECIAL SESSION
June 8, 2021
1:34 p.m.
1:34:04 PM
CALL TO ORDER
Co-Chair Merrick called the House Finance Committee meeting
to order at 1:34 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair (via teleconference)
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson (via teleconference)
Representative Andy Josephson (via teleconference)
Representative Sara Rasmussen (via teleconference)
Representative Adam Wool (via teleconference)
MEMBERS ABSENT
Representative Bart LeBon
Representative Steve Thompson
ALSO PRESENT
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor; Lucinda Mahoney, Commissioner,
Department of Revenue; Alexei Painter, Director,
Legislative Finance Division; Representative Mike Cronk.
SUMMARY
PRESENTATION: FY 22 10-YEAR PLAN OFFICE OF MANAGEMENT AND
BUDGET
PRESENTATION: ANALYSIS OF GOVERNOR'S FISCAL PLAN BY
LEGISLATIVE FINANCE DIVISION
Co-Chair Merrick reviewed the meeting agenda. She
recognized Representative Mike Cronk in the audience.
^PRESENTATION: FY 22 10-YEAR PLAN OFFICE OF MANAGEMENT AND
BUDGET
1:34:39 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, provided a PowerPoint presentation
titled "State of Alaska, Office of Management and Budget,
House Finance Committee: FY2022 10 Year Plan," dated June
8, 2021 (copy on file). The plan had been updated to
include the governor's proposed constitutional amendments.
He began on slide 2 and discussed the governor's 10-year
plan. He explained that statute required the governor to
submit an annual 10-year plan in conjunction with the
December 15 budget. He detailed that the plan had to
balance sources and uses of funds. He elaborated that over
the 10-year projection period, the proposed expenditures
had to match or be supported by projected revenues or
available savings.
Mr. Steininger stated that the plan was a projection of the
impacts of policy decisions related to revenues and
expenditures. The plan assumed the enactment of any of the
governor's proposed fiscal policy objectives included in
the December 15 budget (including budget amendments,
supplemental requests, and significant legislation with
fiscal impacts released on December 15). The plan was also
reflective of future goals and targets associated with
spending, new revenues, or changes over the 10-year period.
He highlighted that the 10-year plan was a statement of
policy and a statement of a long-term fiscal plan by the
executive branch and governor. He noted the plan was not
intended to be a baseline model or projection of future
events based on no action.
1:37:06 PM
Co-Chair Merrick noted that Representative Rasmussen joined
the meeting via teleconference.
Mr. Steininger turned to slide 3 and discussed the 10-year
plan updated for the governor's proposed HJR 7 and SJR 6.
He explained that typically the 10-year plan was released
with the budget on December 15; it was not typically
revised during the session that followed. However, the
administration was considering major changes to the state's
fiscal structure through HJR 7/SJR 6; therefore, the need
for updating the long-term fiscal outlook was imperative.
The updated plan included all of the governor's
supplemental requests except for $1.2 billion for a
supplemental Permanent Fund Dividend (PFD). The request
continued to be active, but the administration acknowledged
a supplemental PFD payment may not be part of the
structural plan.
Mr. Steininger continued to review slide 3. The updated 10-
year plan included all of the governor's amendments,
including amendments released the previous week covering
bargaining unit adjustments. He elaborated that the plan
reflected a 50/50 dividend split, which aligned with the
governor's proposed constitutional amendment, but not the
administration's budget released on December 15. He stated
that without the 50/50 structural change, the projections
would revert back to using the statutory PFD. He relayed
that the plan excluded the Alaska Housing Finance
Corporation (AHFC) bonding for the capital budget. He
informed members it would appear as an increase in capital
spending for undesignated general funds (UGF). He explained
that the administration continued to support the proposal;
however, it had not passed during regular session and was
no longer reflected in the plan modeling.
Mr. Steininger relayed that the updated plan included
savings from SB 55, which passed during regular session and
impacted the way Public Employees' Retirement System (PERS)
payments were paid. The plan had been updated to include a
$3 billion transfer from the Earnings Reserve Account (ERA)
to the Constitutional Budget Reserve (CBR). He explained
that the amount would act as a bridge fund to allow the
state to make it through the next couple of years while the
changes in revenue and expenditures became visible and
brought the plan into balance over the long-term.
Additionally, the plan reflected the rolling of the Power
Cost Equalization (PCE) Fund into the Permanent Fund in FY
23 and the impact to the General Fund budget from moving
PCE program and community assistance program to UGF in FY
24 going forward.
Co-Chair Merrick noted she would ask members if they had
questions at the end of each slide in order to make it
easier for members online.
1:41:13 PM
Mr. Steininger turned to slide 4 titled "10 Year Plan -
Short Term." He explained that the assumptions in the plan
fell into two categories: short-term assumptions including
FY 23 and FY 24 where assumptions could be more nuanced and
long-term assumptions including outyears that contained
less visibility in terms of impacts policy decisions would
have. The plan included an FY 23 and FY 24 phase out of the
one-time and short-term federal relief from FY 21 and FY
22. He explained there were some expenditure increases in
the future resulting from the phase out. The plan had a
baseline capital budget of $150 million. He detailed that
the capital budget was fairly constrained and allowed for
major match programs and a small amount of discretionary
capital. The capital budget began escalating at a 1.5
percent rate beginning in FY 23 to acknowledge costs would
increase over time.
Mr. Steininger continued to address the short-term portion
of the 10-year plan. The plan included two years of budget
reduction targets of $100 million per year. The plan set a
target for budget reductions as part of the annual budget
development process. He highlighted the existing gap
between expenditures and revenue. He stated the solution
[to fill the gap] needed to come from all sides of the
equation. He remarked that targets would involve policy
discussions and may include some statutory changes. He
referenced SB 55 that addressed cost drivers in the budget.
The $100 million per year included positive and negative
cost drivers in the state budget such as formula programs
where a population or demographic change could impact the
cost of the program. He referenced other areas that should
be impacted positively by positive market returns such as
retirement contributions by the state.
1:45:18 PM
Representative Edgmon stated that looking out 10 years
reminded him of the National Weather Service where there
was some sense, but it was difficult to predict what would
happen. He had the impression that in order to look 10
years out with the governor's 50/50 plan, there were many
assumptions built in that the current presentation did not
reflect. He highlighted the necessary statutory changes to
get to $100 million in cuts per year as an example. He
assumed the proposal referred to UGF. He considered a
population inflation adjusted with the late 70s, if the
population in Alaska grew, he would like to see more
definitively where the cuts would come from. He understood
the administration had indicated more information was
forthcoming in terms of budget cuts and revenue sources. He
underscored that the governor's 50/50 plan engendered much
more detail. He referenced the targeted cuts [listed on
slide 4] and questioned whether the reduction could be made
without shutting down schools in rural Alaska or cutting
Medicaid when hopefully the population and needs were
increasing. Under the scenario, new revenue would be
necessary. He recalled that in 2008 former Representative
Mike Hawker's bill had created the 10-year forecast. He
believed there was utility to the forecast; however, under
the current circumstances he believed there were
limitations to what the plan could provide.
Mr. Steininger agreed there was uncertainty when looking
out 10 years in the future. He explained it was the reason
the presentation was broken out into a short-term and long-
term outlook. He stated it was reasonable to set targets
for reductions in FY 23 and FY 24 to bring expenditures
down. He elaborated on the importance of a clear goal when
working with departments and agencies. He agreed that
setting goals for FY 27 was not necessarily reasonable at
the current time. The idea was to set short-term goals and
look at what the long-term impact would be if the goals
were achieved. He remarked that most other forecasted
timelines were in the five to six year horizon. He cited
the capital improvement six-year plan and fiscal notes that
were projected six years out. He noted that the annual $100
million reductions were only for the first two years of the
plan. The administration did not expect significant
reductions year-over-year for the entire projected period.
1:50:44 PM
Vice-Chair Ortiz asked if it was safe to assume that with
an FY 23 reduction goal of $100 million, the reduction
would have to come from the two large cost drivers
including health and human services and education.
Mr. Steininger replied, "Not necessarily." He stated the
cuts did not have to come from the areas mentioned by Vice-
Chair Ortiz, but they would need to be part of the
conversation. He stated decisions for how to fund the
particular programs needed to be based in policy. He
referenced the last bullet point on slide 4 specifying that
the plan would require policy discussions on major budget
drivers. He elaborated that policy discussions should be
centered around how to achieve program goals at a lower
cost. He stated it was difficult to provide a specific
example because the discussions for FY 23 were in the
beginning stages. He relayed that apart from the large
budget areas, the administration was looking at other
expenditures that may bring smaller savings. He remarked
that the reductions would not be limited to education and
health and social services.
1:53:54 PM
Vice-Chair Ortiz stated that he had assumed the cuts would
have to come from the Department of Health and Social
Services and Department of Education and Early Development
because other agencies had been cut an average of 25
percent in the past several years. He remarked that when
looking at the budget spending graph, the other agencies
did not account for very much of the $4.3 billion to $4.5
billion budget.
Vice-Chair Ortiz looked at the baseline capital budget of
$150 million on slide 4. He asked if Mr. Steininger thought
the proposal was good policy in relationship to the ever
increasing deferred maintenance obligation.
Mr. Steininger replied that a $150 million capital budget
was fairly constrained. He detailed that the proposal would
allow for the major match programs, significant recurring
annual capital items, and a small amount of discretionary
capital. He elaborated that the deferred maintenance
funding typically showed up as designated general fund
(DGF) via the Alaska Capital Income Fund and was not
necessarily part of the $150 million. He explained that
Alaska Capital Income funding was not projected to grow
significantly in the outyears; therefore, it would be
necessary to look into finding a way to supplement the
funding source with discretionary capital or another
source.
1:56:48 PM
Co-Chair Merrick referenced Mr. Steininger's statement the
administration was having internal discussions about some
of the major cost drivers. She asked if the policies would
be ready to present in the August special session.
Mr. Steininger answered that he could not say for certain.
He stated that due to the annual budget cycle, most of the
administration's conversations tended to revolve around the
December 15 release deadline. He relayed that if any ideas
were ready for legislative consideration, the
administration would discuss the topic internally.
Representative Wool recalled a presentation from an outside
consultant to the committee about one year earlier
pertaining to Medicaid cost. He recalled being told the
costs of medical care in Alaska were increasing faster than
inflation. He remarked that Alaska's costs were increasing
faster than costs in any other state. The presentation had
pointed to a Medicaid crisis where costs would be
increasing at a high rate. Additionally, the state's
population was aging, which required more healthcare. The
combination resulted in a bleak outlook in terms of
Medicaid expenses. He referenced the administration's
proposal to cut the major cost drivers. He wondered how the
$100 million cuts would integrate with rising costs. He
noted that the Base Student Allocation (BSA) formula had
not been increased in numerous years. He highlighted that
the university's budget had been cut and the cost of
corrections was increasing due to policy change. He asked
how to reconcile the issues with the proposal to cut $200
million in the upcoming years.
1:59:49 PM
Mr. Steininger responded that one of the constant struggles
associated with constraining the budget was natural upward
pressures on costs. He informed members that the DHSS team
working on Medicaid was aware of the need to find ways to
accommodate natural cost increases before making any
substantive change to reduce the overall system cost. There
were areas DHSS was looking to determine how to make policy
changes or work with the federal government on change that
would result in a reduction in the state's cost for the
Medicaid program. He clarified the administration was not
claiming the $200 million reduction over a two-year period
would be an easy process. He highlighted upward cost
drivers impacting the way the state did business across all
agencies. He stated policy discussions would have to take
place around every aspect of the plan.
2:02:04 PM
Mr. Steininger turned to slide 5 focusing on the long-term
portion of the 10-year plan (FY 25 through FY 30). He
highlighted an operating and capital budget growth
projection of 1.5 percent per year, which was lower than
inflation estimates of 2 percent per year by Callan. The
plan used the lower number because when looking at state
budget history, state expenditures tracked better with
availability of revenue versus inflation. He pointed to a
graph on the slide reflecting Alaska revenue and spending
history from 1985 to 2020. He highlighted a black line
showing the FY 85 budget adjusted for inflation. He
explained that while inflation had steadily increased, the
budget had stayed in line with revenues.
Mr. Steininger pointed out that during constrained revenue
from 1986 to 2004, the budget had stayed relatively flat
with some variability. He explained that the state was
facing another 10 years of fairly constrained revenues. He
stated it was fairly safe to assume policy choices made
during the time period would be informed by the constrained
revenue. The administration did not believe future
administrations or legislatures would inflate spending
beyond available revenue. He speculated that operating
budget growth of 1.5 percent per year was likely
optimistically high during a period of fairly flat revenue.
Mr. Steininger stated that other assumptions in the long-
term plan tied to official forecasts and current policy.
The assumptions followed official forecasts for debt, PERS
state assistance payments, and oil and gas tax credits. The
plan also included current policy assumptions such as 50
percent funding of school bond debt and Regional
Educational Attendance Area (REAA) schools proposed in the
governor's FY 22 budget (and what had been enacted in FY
20).
2:05:31 PM
Representative Edgmon asked if the red line reflecting the
budget [on slide 5] had been adjusted for population.
Mr. Steininger clarified that the number reflected the
nominal values without inflation or population adjustment.
The black line showed FY 85 budget adjusted for inflation.
He clarified that the black line would be steeper and
higher when adjusted for population.
Representative Edgmon asked for verification that Alaska
was one of two states without a broad-based tax.
Mr. Steininger replied that he believed so.
Representative Edgmon stated that without a broad-based
tax, the more people using the roads, schools, correctional
system, did not bring any additional revenue. He believed
the plan anticipated additional revenue. He highlighted
that funding school bond debt and REAA schools at 50
percent was a transfer of responsibility to local
municipalities. He elaborated that the action would result
in cuts at the local level or new revenue sources at the
local level. There were downstream impacts of the 50/50
plan that should be included in the larger story told about
the proposal. He was a skeptic of the governor's 50/50 plan
because he saw too many things in the future that may or
may not exist that were not considered. He referenced the
earthquake from 2018, a heavy fire season, a substantial
dip in the market as in 2008/2009, or other event that
could tie the hands of future legislators.
2:08:44 PM
Mr. Steininger responded specifically to Representative
Edgmon's concern about a major disaster such as an
earthquake that would require an immediate draw on the
state treasury. He stated that while the model did not
include the potential for unpredictable events like
disasters, they were considered in the philosophy put
forward by the administration. He stated that a key purpose
of the $3 billion bridge fund concept ensured a minimum
balance of approximately $1.5 billion in the CBR during the
10-year timeframe. He relayed that $500 million was needed
for daily cashflow in the CBR; funds above that amount
could be used to address revenue volatility or immediate
needs such as disaster funds. The funds were not reflected
in the expenditure line, but they were reflected in the
savings line.
Representative Edgmon continued to struggle with looking at
locking something into the constitution that would be iron
clad while hoping to grow the state, increase prosperity,
improve the balance of revenues and expenditures, and
provide quality services. He supported downsizing
government and limiting taxes. He would like to not do a
broad-based tax. He looked at a bullet on slide 6 that
specified $300 million in revenues or further reductions
beginning in FY 25 going forward. He stated it may be the
right thing to do, but it may not be the right thing if
population grew by 100,000 and schools were bursting at the
seams. He would continue to be a skeptic until proven
otherwise.
Representative Carpenter asked if there had been a broad-
based tax between FY 85 and FY 05.
Mr. Steininger replied in the negative. He did not recall
the exact year the income tax had been repealed.
Representative Carpenter asked if the state had essentially
split the Permanent Fund earnings 50/50 between state
services and PFDs (between FY 85 and FY 05).
Mr. Steininger responded that between FY 85 and FY 05, the
earnings of the Permanent Fund had been deposited into the
ERA and the fund corpus. He clarified that the funds had
not been spent on anything but PFDs.
2:13:06 PM
Representative Carpenter stated he had been under the
impression the statutory formula had been 50/50 between
services and the PFD.
Mr. Steininger answered that while the state may have been
allowed to expend Permanent Fund earnings, it had not done
so other than to cover management and legal costs related
to the fund.
Representative Carpenter understood there was a lot of
speculation with a 10-year plan. He looked at the graph on
slide 5 and observed that the state had been able to
maintain a fairly flat revenue and budget trajectory over
the 20-year period [between FY 85 and FY 05]. He
highlighted the large spike in revenue and spending around
FY 05. He asked what had held the budget flat and
affordable during the aforementioned time period.
Mr. Steininger replied that the budget decisions made
during the time period had been made during constrained
revenue. He explained there had not been revenue available
to allow for increases to the budget. He relayed that
spending had increased when revenue increased. The point of
slide 5 was to demonstrate that the pressure of inflation
did not necessarily drive the spending increase. He
explained that the inflationary change between FY 05 and FY
08 was not at the level of the slope shown in red.
2:16:18 PM
Representative Carpenter asked how to compare the current
size of the economy to the economy between FY 85 and FY 05.
He was interested in the size of the economic engine
necessary to sustain the size of government. He noted the
legislature had been able to avoid spending more than
incoming revenue for two decades. He understood that the
lack of money had restrained spending. He observed that it
had not been the case between FY 16 and FY 20. He stated
that the argument in a long-term plan would be to raise
taxes. He reiterated his question and asked if it was
feasible to add a tax burden to the economy at its current
size. He looked the green line as a measure of the size of
economic output to state government and observed that it
was fairly in line with what it had been for two decades
prior to the large spike due to high oil prices.
Mr. Steininger could follow up with information on the
Alaska GDP [gross domestic product] over the specific
timeframe compared to the present. He stated that spending
needed to be in line with available revenue. He detailed
that another component was setting policy to prevent
spending increases should revenue increase again. He looked
at the red line [reflecting the budget] on slide 5 and
noted it had been flat during the 1980s and 1990s and had
not dropped down to meet revenues in recent years (spending
had dropped somewhat, but there continued to be a gap
between spending and revenues). He remarked that it was
much easier to add programs than to remove programs. He
stated that preventing the scope increase was fundamental
to discussions about the long-term sustainability of the
state's fiscal picture. He highlighted the importance of
ensuring increases were driven by demand and not merely by
availability of cash.
2:20:13 PM
Representative Carpenter asked the commissioner of
Department of Revenue to respond to the question as well.
LUCINDA MAHONEY, COMMISSIONER, DEPARTMENT OF REVENUE,
shared that while the price of oil had been very high, the
legislature and governor had increased education funding
from 50 percent to 80 percent, which may have accounted for
some of the increase in the years in question.
Additionally, the state had picked up a higher portion of
retirement costs above the 22 percent. She stated that the
revenues had enabled the state to help communities more.
Representative Carpenter stated that the information was
helpful in explaining why the red line [reflecting the
budget on slide 5] grew. He clarified his question. He
explained there had been no broad-based tax between FY 85
and FY 05, yet the state had been able to maintain a flat
budget for two decades. He remarked there was a budget gap
at present and the CBR had been drained. He looked at the
chart and pointed out that current incoming revenues were
similar to revenues brought in between FY 85 and FY 05. He
noted he would be interested to see the data adjusted for
inflation. He remarked that the green line was reflective
of what the state had taken out of the private sector
economy to pay for state government. He asked if the
current size of the economy was greater than it had been
for the two aforementioned decades. He wondered if there
was room for a broad-based tax based on the size of the
state's economy. Alternatively, he asked if consideration
should be given to bringing the budget line down to align
with the revenue line.
2:23:52 PM
Commissioner Mahoney agreed there were currently
expenditures that exceeded what the state could afford. She
detailed that the state had made decisions to continually
support its communities, schools, education, and health in
an unaffordable way. She addressed the question about
whether the economy could afford it. She stated it was a
significant policy question currently under discussion. She
did not have the answer. She elaborated economists could
run models and consider the macroeconomic impact of a sales
or income tax and determine how it would impact the
different sectors of the economy. Other questions included
how a tax would impact the state's population and
businesses. She relayed that no one had a precise answer to
the question.
Representative Carpenter remarked that there was a
conversation trying to solve a political problem of what to
do with the PFD, taxes, cuts, and more. He thought it was
important to ask whether the state's economy could support
additional revenue before taking any action with regard to
additional revenue. He wondered if the economy could afford
additional taxes. He looked at historical information and
observed that the state had done fine without a broad-based
tax. He emphasized that the state was coming down from a
binge off of a period of high revenue. He stressed that the
previous economy no longer existed. He wondered whether the
current economy looked more like the period between FY 85
and FY 05 or FY 05 to FY 13 in terms of what it could
sustain in additional revenue. He asked the administration
to help the legislature understand how much money could be
pulled out of the economy without doing damage. He was
hearing comments about the need to implement tax and raise
revenue. He underscored there had been something that had
allowed the state to survive between FY 85 and FY 05 that
did not include a broad-based tax.
2:27:27 PM
Co-Chair Merrick asked for verification that the red budget
line on slide 5 included the PFD.
Mr. Steininger replied, "No, it does not."
Co-Chair Merrick believed it was worth noting.
Representative Josephson referred to slide 5 regarding the
funding of school bond debt and REAA schools at 50 percent.
He noted that Mr. Steininger had stated it was current
policy. He clarified it was the administration's current
policy. He noted that when the oil recession began, former
Senator Anna MacKinnon had sponsored a bill in the 2015
session to put a moratorium on the state's contribution to
new expenditures. He wondered if the law was no longer in
effect due to a sunset clause. Additionally, he asked
whether the state was currently contributing to new
construction.
Mr. Steininger responded that the sunset had been extended.
He did not recall the extended sunset date on the law.
Representative Josephson stressed that it meant the
situation in terms of impact on local government was even
worse. He explained there was growing need and less
expenditure by the state. He understood that if the state
became flush with cash again, there was wisdom in not
spending everything it had. He highlighted that the chart
reflected the state had not spent all of the incoming
revenue in the past, which was the reason there had been
$17 billion in savings outside the Permanent Fund at one
point. He pointed out that part of the reason for the
expenditures was due to the enormous need and a backlog of
demand. He underscored that Alaska led the nation in sexual
assault crimes. He added there were 2,300 contaminated
sites that needed cleaning. He relayed that the studies
Representative Carpenter wanted to see had already been
completed by in the [House] Ways and Means Committee. The
studies showed the impact of new revenue measures on the
economy. He encouraged members to review the information.
2:30:44 PM
Representative Wool remarked that the graph [on slide 5]
was adjusted for population and inflation. He believed that
when factoring in population growth and inflation, the
state's budget was lower than it had been for many decades.
He stated that the level of revenue shown in red was not
reflective of the economy and only showed the amount of
revenue the state was receiving, predominantly from oil
taxes and income. He highlighted that the state's GDP was
not on the graph. He stressed that GDP in 1985 had
primarily been from oil and gas; however, over the past
several decades GDP had expanded well beyond oil and gas.
He suggested that the health of the economy was about the
GDP and many sectors had grown greatly, including tourism,
finance, transportation, and other. He pointed out that the
information was not included on the slide because the state
was not receiving any revenue from the additional sectors.
Representative Wool stated that if the state's population
increased, i.e., when there had been an effort to get
Amazon to come to Anchorage with 20,000 employees, it would
have taxed the state's economy instead of helping; however,
GDP would have increased. He stressed that the graph was
lacking in data, and it was hard to draw any valuable
conclusions from it. He underscored that other sectors
apart from the oil and gas industry currently accounted for
over half of the state's GDP. He thought determining the
state's economy could not sustain revenue based on the
information in the graph was a misnomer. He believed more
data was needed in addition to oil and gas revenue when
looking at the health of the overall Alaskan economy. He
spoke to the desire for increasing the economy and
population. He remarked that when the pipeline first
yielded money in the 1970s there had been an increase in
state spending because there had been a lack of state
spending for some time. He believed it was a similar
situation to the timeframe shown on the graph. He thought
catchup was needed.
Co-Chair Merrick clarified that the green line reflected
revenue and the red line reflected the budget.
Commissioner Mahoney informed the committee that in 2004,
the state's GDP had been $43 billion. The current GDP was
$53 billion. The composition of the GDP was currently much
more diverse than it had been in 2004. She stated that oil
and gas was no longer the primary source of GDP.
2:34:35 PM
Representative Carpenter clarified that he had not claimed
the state could not afford a broad-based tax. He had asked
if the state could afford a broad-based tax. He noted that
for two decades the state's spending had been flat without
a broad-based tax. He remarked it was not necessarily the
case that a broad-based tax was needed to balance the
budget.
Representative Edgmon estimated that the state's population
had come close to doubling during the period reflected on
the graph starting in 1984/1985. He explained that without
a broad-based tax and with population increase, there were
more people using services that fell on the agencies and
legislature, primarily funded by oil revenue in the past.
He thought it would be fascinating to do an analysis at the
point when there had been an uptick in the revenue and
budget lines [shown on slide 5]. He recalled being on the
House Finance Committee in the past when the committee had
increased state troopers significantly because there had
been the money to do so. He remarked that years prior to
that, the state had not had the money.
Representative Edgmon pointed out that the graph only
reflected state spending and did not include federal
spending. He highlighted that from 1983 through 2006,
Alaska had the late Senator Ted Stevens bringing in a
substantial amount of federal money into the state. He
pointed to the budget and revenue spike between FY 06 to FY
12 and remarked that there had been record capital budgets
at the time. He indicated that the decline in the budget
line was largely due to smaller capital budgets. He
stressed that Alaska still had a tremendous number of
needs. He remarked that when the legislature hopefully had
the opportunity to appropriate money through the federal
infrastructure bill, there were substantial deferred
maintenance and construction needs. He listed the need for
construction of buildings, schools, roads, bridges, and
other.
Representative Edgmon reported that the cost of energy in
Alaska had gone up tremendously when revenue and the budget
increased. He shared that the price of gas per gallon in
Dillingham had increased fivefold or more. Additionally,
the cost of operating the Alaska Marine Highway System
(AMHS) and heating state buildings had increased
substantially. He would struggle with putting iron clad
parameters in the constitution, knowing the volatility in
the highest cost state because there would be a lot of give
and take in the future to make everything work. He noted
that the current unmet needs included operating and capital
expenditures. He stressed that the conversation and
information needed to go much deeper for the proposal to
make sense.
2:39:00 PM
Co-Chair Merrick agreed with the capital budget comments
made by Representative Edgmon.
Mr. Steininger moved to revenue assumptions in the 10-year
plan on slide 6. Traditional revenues were per the
Department of Revenue (DOR) 2021 spring forecast. He
relayed that POMV revenues had been updated by DOR based on
internal modeling using actual FY 21 returns through April
26, 2021. He explained that returns to the Permanent Fund
had been much greater than anticipated in the past year,
which resulted in a significant change in the previous POMV
revenue projection. He noted that the projections would
revert to the 6.25 percent return estimate for FY 22 going
forward. The plan included $150 million in new revenue for
FY 24 and $300 million beginning in FY 25 going forward. He
acknowledged that new revenues would take time to turn on.
He remarked that if the state was able to exceed the
governor's reduction targets of $100 million per year for
two years, the need for new revenue may be somewhat
alleviated.
2:41:15 PM
Mr. Steininger moved to a table on slide 7 showing the
governor's amended budget 10-year plan with HJR 7 and SJR
6. The top portion of the table included UGF revenue. He
remarked that UGF revenue built to the state's annual
deficit or surplus. The section included traditional UGF
revenue, the POMV draw for government, and new revenues. He
pointed to FY 22 showing the impact of HJR 7 and the 50/50
PFD. He elaborated that the $1.5 billion shown under the
POMV draw for government line reflected 50 percent of the 5
percent POMV draw [from the ERA].
Mr. Steininger moved to the middle section of the table,
which included UGF expenditures including agency
operations, statewide items, and the capital budget. He
noted that the [governor's proposed] $100 million per year
reduction was reflected in the agency operations line;
however, it was not necessarily where the reduction would
be implemented. He remarked that the administration would
reduce costs in the statewide items if possible. He noted
the reduction merely needed a place on the chart. The
section also included the total General Fund
appropriations, the pre-draw surplus or deficit, and the
savings draw. He pointed out that the savings draw was only
made possible by moving the bridge fund into the CBR. He
looked at FY 22 under the reserve balances section of the
table and highlighted a net increase in the CBR of $1.6
billion (net of the deficit draw from the CBR and the
bridge draw from the ERA into the CBR). He remarked that
the bridge draw enabled the state to work through five
years of the model showing declining deficits over time to
reach the period in FY 27 where surpluses began. The bridge
fund also enabled the state to maintain a CBR balance of
greater than $1.2 billion to allow for flexibility related
to unpredictable events (e.g., earthquakes or large fire
years).
Mr. Steininger moved to the bottom section of the table on
slide 7 showing the Permanent Fund balance growing to $90
billion in FY 30. He noted that the $76.4 billion was based
on DOR's most recent update for the POMV draw. He believed
the fund balance was currently higher due to the
continuation of positive returns. The bottom line of the
section showed the PFD on a per capita basis. He
highlighted that the draw from the ERA in FY 22 was roughly
$6 billion returning to the POMV draw only in subsequent
years. He understood there was some confusion about how the
PFD payment in FY 22 was proposed to be made. He stated
that the payment would come out of the draw into the CBR.
The governor's proposal included constitutionally
protecting the POMV draw and the Permanent Fund starting in
2024 after ratification by the voters.
2:46:13 PM
Representative Edgmon asked if the administration had
modeled what it would take to not have any new revenues.
For example, he asked if the administration had looked at a
75/25 percent split (government services/PFD), which he
estimated would result in a PFD around the historical level
of $1,000 to $1,100.
Mr. Steininger replied there was a policy discussion about
the split. He stated that the administration believed the
50 percent split was an equitable distribution to the
people of Alaska. He relayed that it was less about making
the math work and more about sharing the resource with the
people. He looked that the governor's 10-year plan and
stated that the math worked with the combination of
projected POMV revenues, traditional revenues, and fairly
modest increase in new revenues.
Representative Edgmon referenced Mr. Steininger's statement
about equitability for Alaskans. He asked whether the
administration had talked to Alaskans about the subject. He
shared that he had taken part in numerous public hearings
in 2019 where he had heard directly in Kenai, Anchorage,
Fairbanks, Bethel, Sitka, Ketchikan, and maybe a little
less in Mat-Su, that the public wanted a balance of
everything including a sustainable PFD and public services.
He presumed the new revenues referenced in the 10-year plan
were a combination of sales tax and taxing the oil
industry. He thought income tax appeared to be "way off the
table" in terms of political palatability. He reasoned that
the $300 million would come from sales tax in an
environment where many smaller communities such as Cordova,
Dillingham, Nome, Sitka, and Ketchikan already had maximum
levels of local sales tax. He pointed out that some of the
revenue would have to come from industry somewhere. He
elaborated that the funds would not come from the fishing
industry. He mentioned the mining industry and potentially
a seasonal tax from tourism. He surmised that the majority
of the funds would have to come from the oil industry,
unless there was a sales tax, which would also impact the
economy. He asked what the projections were for the $300
million. He thought the administration could present the
information to the legislature by August. He believed the
information should arguably be ready to present to the
legislature presently because the administration's original
timeline had been to get everything approved by June 18. He
asked where the $300 million would come from.
Commissioner Mahoney answered that the governor's goal for
the first session was to first put the structure in place.
The governor wanted the legislature to work on putting the
5 percent draw and 50/50 plan in place. She elaborated that
the governor recognized new revenue measures would be
needed, which would primarily be on the governor's call for
the August special session. She stated that things had been
delayed and some of the topics would carry over into the
second session. She stated that the administration would
discuss new revenue measures in the second session. She
informed committee members that the administration was
working on specific revenue measures currently. The revenue
measures were very different than any tax seen in Alaska
and were more modern. She noted that the administration was
still flushing the measures out. She stated that the
administration would need to work with the Department of
Law to ensure the measures fell within the state's
constitution, to make certain the taxes could be
implemented. She added that the administration needed to
work with the legislature on the ideas.
Commissioner Mahoney remarked that the governor had stated
repeatedly that he wanted the August conversation to be
collaborative to identify the new measures. She noted that
the administration was currently working with a consultant
on revenue estimates associated with the gaming industry.
She remarked on the importance of the economic impacts of
the industry on the state's economy and the potential to
diversify the economy. She stated a few more revenue
measures would be brought to the legislature.
2:52:56 PM
Representative Edgmon asked why the administration was not
considering a 75/25 percent split where the average Alaskan
received a historical level PFD and did not get taxed for
it. He stated that the split would allow the state to
maintain services and hopefully afford a capital budget
exceeding $150 million. He wondered why they would not take
an approach where new revenues were unnecessary and where
Alaska could continue to be the only state without a broad-
based tax. He noted Alaska was also the only state that
would be funded by an endowment going forward. He pointed
out that Alaska would be the only state to put the
specificity proposed by the governor into its constitution.
Representative Edgmon stressed that Alaska would be the
only state with 50/50 sideboards in its constitution into
time immemorial. He remarked that Mr. Steininger and
Commissioner Mahoney had not been able to provide a
response other than it was a value issue. He did not
understand how the administration had made the
determination given it had not been out talking to the
people. He stated it was the position of the administration
to do a 50/50 split because it produced a higher PFD. He
underscored that it would also produce higher taxes, bigger
cuts, and numerous unknowns that a 10-year plan could not
begin to predict. He stated that the nature of things in
Alaska were bigger, more expensive, and more volatile than
in any other state. He would continue to struggle with the
issue. He thanked the presenters.
Commissioner Mahoney reported that DOR was currently
working on updating a presentation it had done with
Commonwealth North the previous summer that identified all
of the different revenue types, the impact to changing some
of the taxes, as well as new revenues associated with
income and sales taxes. The department's goal was to update
the presentation with 2021 numbers prior to mid-July
because DOR planned to present it to the [House] Ways and
Means Committee.
2:55:45 PM
Representative Josephson referenced a 10-year plan from FY
11 that appeared to be at the transition between the
resignation of Governor Sarah Palin and Governor Sean
Parnell. He stated that at the time, under a conservative
administration, OMB believed there would responsibly be 3
percent annual budget growth. He elaborated that OMB had
projected ANS West Coast oil prices of $104 per barrel in
FY 20 and it had projected the CBR would grow to almost $24
billion. He stated that none of the projections had come to
fruition. He thought it illustrated that a number of
legislators believed what they had been told by
conservative financial experts who subscribed to the 5
percent formula going forward. He detailed that some had
been concerned a 5 percent draw was too liberal. He
expressed concern over the governor's $3 billion bridge
fund proposal and asked why the present was any more
special than five years in the future. He wondered whether
there would be another bridge fund in five years. He
believed the administration was really asking the
legislature to throw out SB 26. Additionally, the
administration was asking the legislature to take $1.5
billion off the table in perpetuity for future legislatures
that would have different and varying concerns that were
currently impossible to imagine. He asked for comment from
the administration.
Mr. Steininger replied that the proposed $3 billion bridge
fund draw from the ERA to the CBR was a one-time event. He
disputed the statement that the draw would throw away the
provisions under SB 26 given the governor's current
proposal to enshrine the bill provisions in the
constitution. He stated that in five years when the $3
billion draw would have been drawn down, there would not be
an option to go back to the ERA to draw more. He stressed
the proposal was a one-time event to allow the state time
to enable the constitutional amendment to take place and
get through the period containing a significant difference
between revenues and expenditures. He did not necessarily
share Representative Josephson's concern that the
administration was proposing to repeat the policy in the
future. He stated that the proposal was a one-time
mechanism to allow the state to get to a more sustainable
fiscal picture.
3:00:30 PM
Representative Wool referenced the 10-year plan from 2011
cited by Representative Josephson and asked what the
production level projections had been. He guessed the
projection had not been (the current rate of) under 500,000
barrels. He noted the Permanent Fund was currently at a
high based on recent stock market activity. He remarked
that many of the gains made by the Permanent Fund were
unrealized because the stocks had not yet been sold. He
asked if the administration was making any market
correction projections going forward. If not, he wondered
why. He thought the projections may be overly optimistic as
they had been in the projections 10 years back.
Commissioner Mahoney answered that DOR had done a
significant amount of stress testing on the model. One area
of focus had been on how investment returns would impact
the POMV and its ability to meet the governor's goals of a
50/50 plan. She elaborated that a PowerPoint had been
developed, which she was happy to share with the committee.
The department had identified different periods of
investment returns in 10-year increments. She relayed the
model identified whether the additional $300 million in
revenue would be sufficient to withstand any market
corrections.
3:03:00 PM
AT EASE
3:08:08 PM
RECONVENED
^PRESENTATION: ANALYSIS OF GOVERNOR'S FISCAL PLAN BY
LEGISLATIVE FINANCE DIVISION
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
presented a PowerPoint titled "Analysis of Governor's
Fiscal Plan," dated June 8, 2021 (copy on file). He began
on slide 2 with the Legislative Finance Division (LFD)
baselines prior to speaking to the governor's plan. He
detailed that LFD had presented two budget baselines in its
overview of the governor's budget in January, including
current law and current policy. He explained that the
baselines were designed to provide a neutral starting point
for the year's budget discussions, separate from any policy
choices made in the governor's budget request. He stated
that LFD's fiscal modeling was currently based on versions
of the FY 22 budget that were similar to those baselines.
He reported that LFD's fiscal model was designed to show
policy makers the longer-term impact of fiscal policy
decisions. He explained that LFD's baseline assumed current
budget levels were maintained (adjusted for inflation into
the future). He noted that any policy differences were
highlighted against the baseline.
Mr. Painter provided LFD revenue assumptions on slide 3. He
detailed that LFD's baseline revenue assumptions used DOR's
spring revenue forecast for petroleum and non-petroleum
revenue. The forecast assumed oil prices of $61 per barrel,
growing with inflation in future years. The assumptions
also included the Department of Natural Resources (DNR)
forecast showing an increase in oil production from 459,700
barrels per day in FY 22 to 565,500 barrels per day in FY
30. Additionally, LFD's baseline assumed actual FY 21
returns for the Permanent Fund through the April 30 Alaska
Permanent Fund Corporation (APFC) statement and Callan's
6.2 percent assumption for FY 22 and beyond.
Mr. Painter reviewed LFD's spending assumptions on slide 4.
He detailed that for agency operations, LFD was using the
Senate's first committee substitute, growing with
inflation. He noted the number reflected an ~$8 million
difference from the original baseline. He explained that
the specific bill version was used as a reasonable starting
point because it did not include any one-time fund sources
that were present in other versions of the budget. He noted
that the number was very close to the current law and
current policy baseline and the adjusted base (the previous
year's budget without one-time items).
Mr. Painter continued to review spending assumptions on
slide 4. For statewide items, LFD's baseline assumed that
all items were funded to their statutory levels. Statewide
items included school debt reimbursement, the Regional
Educational Attendance Area (REAA) fund, community
assistance, oil and gas tax credits, and the PFD. He noted
that LFD's baselines represented the current law scenario,
and its fiscal modeling generally assumed the legislature
was following statutes, unless told otherwise. The
assumptions also included a baseline for fund transfers,
which was essentially the ongoing cost of DEC's Spill
Prevention and Response program.
Mr. Painter reviewed capital budget spending assumptions on
slide 4. He explained that LFD's assumption for the capital
budget used the Senate's first committee substitute of
$176.7 million undesignated general funds (UGF) growing
with inflation of 2 percent. The number represented the
governor's original capital budget submission as of the
February amendment deadline without any one-time fund
sources. He detailed the governor's submittal had included
use of Power Cost Equalization (PCE) funds that were not
statutorily designated and use of Alaska Housing Finance
Corporation (AHFC) bonding. He elaborated that the Senate's
first committee substitute had reversed the one-time
funding sources and reflected a pretty clean start for the
year. In comparison, the governor had submitted additional
amendments during session; therefore, his capital budget
request was significantly higher. He addressed LFD's
spending assumptions of $50 million per year for
supplementals. The amount was based on the average
supplemental appropriations in the past five years minus
any lapsing funds. He clarified the amount reflected the
difference between the budget passed in session and actual
spending.
3:13:07 PM
Co-Chair Merrick noted the slide assumed statewide items
including the PFD would be funded at the statutory level.
She asked for the specific amount used for the PFD.
Mr. Painter answered that for the models of the governor's
plan, LFD assumed the change to the 50/50 PFD. For any
other models, LFD would use the requestor's amount.
Mr. Painter turned to slide 5 and compared the governor's
10-year plan to LFD baselines. He discussed that the
governor's 10-year plan for the budget made several policy
choices aimed at reducing spending. The governor's plan
included 50 percent funding of school debt reimbursement
and REAA fund capitalization. The governor's FY 22 budget
was $65.7 million less for agency operations than the
Senate's first committee substitute. He detailed that some
of the difference was due to one-time items, but the
governor's 10-year plan backed the items out for subsequent
years; therefore, the difference was not large. The
governor's plan included $100 million in additional
reductions in FY 23 and FY 24. Additionally, the governor's
plan used agency growth of 1.5 percent rather than with
inflation. He reported that the governor's plan assumed
supplementals and lapse were balanced out.
Mr. Painter referenced a document in members' packets
titled "OMB and LFD Fiscal Model Assumption Comparison"
(copy on file), which showed all of the administration's
policy choices. He highlighted two points where there were
differences in baselines. He pointed to the POMV draw on
the second line and explained that LFD assumed returns of
6.2 percent as presented by Callan, while OMB's assumptions
included a 6.25 percent return. The second difference
pertained to retirement. He explained that the Alaska
Retirement Management Board (ARMB) was responsible for
setting rates and was meeting the following week. He
detailed that ARMB would adopt numbers with FY 20 actual
investment results. He elaborated that the FY 22 cost in
the budget was based on FY 19 because it was the number
most recently adopted when the budget was prepared. He
expounded that the numbers OMB used in its 10-year plan
reflected the official ARMB numbers prior to its action set
to take place in the coming week. He elucidated that LFD
did not have to use official numbers because its analysis
was not a legally required document; therefore, it used
draft numbers prepared in December that ARMB would adopt in
the coming week. He noted the difference was relatively
minor. He stated that the level of budget reductions [in
the governor's 10-year plan] were not necessarily
unattainable, but the governor's scenario reflected
significant policy choices and not a baseline.
3:17:04 PM
Mr. Painter advanced to a table on slide 6 showing a
comparison of the governor's 10-year plan to LFD baselines.
He noted the negative numbers reflected areas where the
governor's plan was below the LFD baseline. He detailed
that in FY 22, the governor's plan was $128.8 million below
LFD's baseline. The difference grew over the coming two
years with the [two years of] $100 million cuts and without
the 2 percent growth. He elaborated that the impact on the
baseline was bigger than $100 million in cuts because it
meant cutting below inflation. He furthered that the gulf
widened a bit in the future due to the different inflation
numbers. He pointed out that the biggest policy choice was
in agency operations where the governor's assumption was
$3.1 million below the baseline of the current year budget
growing with inflation. The statewide items reflected the
school debt and REAA funding at 50 percent and the
retirement difference. The capital budget was the
difference between the governor's amended budget from
February and the $150 million baseline for future years.
The LFD and OMB assumptions for fund transfers were aligned
and there was a difference in supplementals. He summarized
that the bulk of the difference came from agency operations
and a smaller portion from statewide. The graph on the
bottom of the slide illustrated that LFD's baseline grew
with inflation, while the governor's baseline was
relatively flat.
3:18:41 PM
Mr. Painter moved to slide 7 titled "Analysis of Governor's
Comprehensive Fiscal Plan." He highlighted that OMB's 10-
year plan had $4.86 billion less spending during FY 22
through FY 30. The current legislative policy level
reflected in the LFD baseline included full funding for
statewide items. The LFD analysis added $300 million in new
revenue or additional budget reductions beginning midway
through FY 24 (half of the amount would occur in FY 24 and
the full $300 million beyond that time). The governor's
plan would constitutionalize the PFD at 50 percent of the
POMV, which equated to ~$2,350 per recipient in FY 22. The
governor's plan would transfer the PCE Fund to the
Permanent Fund and constitutionally mandated some funding
for power cost equalization. Additionally, the governor's
plan included a one-time $3 billion transfer from the ERA
to the CBR to act as bridge funding.
3:20:18 PM
Representative Edgmon asked if in any of the discussions
about transferring the PCE Fund to the Permanent Fund had
acknowledged the tension between the legislature's
constitutional power to appropriate versus language that
would specify some funding for power cost equalization. He
wondered whether the subject had come up during LFD's
internal analysis.
Mr. Painter noted that he is not an attorney and could not
speak to the legal aspect. He relayed there had been
discussion on the topic during a House Judiciary Committee
meeting the previous week with the administration's
attorneys. He presumed that Legislative Legal Services had
opinions on the topic, but he had not heard them.
Mr. Painter moved to slide 8 and continued an analysis of
the governor's proposed fiscal plan. He stated that LFD's
modeling and the governor's modeling did not have
significant differences. He noted that the numbers
presented by the administration were technically sound. The
question for the legislature was whether it agreed with the
policy choices in the governor's plan. He explained that
the legislature currently had four main levers to use to
balance the budget, including drawing from savings accounts
(including the ERA), reducing the PFD, reducing the budget,
or increasing revenue. He highlighted that the governor's
plan removed the first two options. Under the governor's
plan, the legislature could no longer reduce the PFD or
draw from savings accounts because the ERA was essentially
the only remaining source (the CBR only contained about $1
billion). He detailed that over the past nine years of
deficits, three of the four levers had been used including
budget reductions, PFD reductions, and savings draws. The
state was currently essentially out of savings beyond the
ERA. He explained that the governor's plan would require
additional budget reductions or new revenue if existing
revenue sources did not meet DOR's projections.
Mr. Painter continued to review slide 8. He stated that the
administration's proposed $3 billion "bridge" allowed time
for increases to existing revenue sources. He noted that
strong Permanent Fund gains in the current year would feed
into the POMV over the coming five years (due to the five-
year average), which would increase state revenue. There
were also some sort-term effects caused by the pandemic in
the corporate income tax that the state expected to see
rebound. He noted in the next several years in the revenue
forecast, revenue grew significantly faster than inflation.
He stated that the proposed $3 billion bridge "perhaps is a
bridge to that." Additionally, the funding was a bridge to
the $300 million in new revenue (or additional cuts) and
the $200 million spending reductions built in to balance
the budget. He explained that without the bridge funding,
there was not sufficient funding in the CBR to transition
to the new system, while also paying a 50/50 PFD over the
coming two years. He stated it was not possible to pay the
50/50 PFD over the next few years without some sort of
overdraw unless new revenues phased in much faster than the
governor's plan.
3:24:30 PM
Representative Josephson highlighted concerns he had raised
to Mr. Steininger regarding SJR 6 and HJR 7 earlier in the
meeting. He had shared his concern of the possibility of
duplicating the bridge fund. He believed Mr. Steininger had
stated that the bridge fund could not be duplicated under
the proposal because the ERA would be folded into the
corpus of the Permanent Fund. He considered the order of
operations. He stated that the situation would be back to
ground zero if the legislature agreed to overdraw and move
$3 billion into the CBR but failed to deliver a
supermajority on the overall plan. He thought they could
come to a point where someone stated they were at the next
bridge in the future.
Mr. Painter stated his understanding of the question and
agreed the scenario was possible. He believed that the
order of operations was important because there would
continue to be a deficit if some but not all elements of a
plan were adopted. He stated that the plan worked if all of
the elements were adopted; however, if a higher PFD was
adopted, but new revenue and budget cuts were not
implemented, the $3 billion bridge would not last long. He
agreed that the $3 billion was only sufficient if the other
steps were taken in the meantime.
3:26:47 PM
Mr. Painter moved to slide 9 and discussed that evaluating
a fiscal plan required goals and metrics. He explained that
the plan could not be merely evaluated as a policy document
without having some goal. He detailed that LFD could
imagine the legislature may have a wide variety of goals or
metrics to fulfill in designing a fiscal plan. He stated
that without explicit information it was difficult to
identify whether the governor's proposed plan worked or
fulfilled the legislature's goals. He provided some
examples of how goals could change the evaluation of a
plan. He stated that if the goal was to balance the budget
at current oil prices, perhaps the governor's plan that
proposed to balance the budget in the next several years
was sufficient with the current oil forecast. Another
argument would be that current oil prices were high enough
in the $61 per barrel range that the state should be trying
to generate surpluses to rebuild the CBR to account for
times of lower oil prices in the future. He noted with that
goal in mind, a plan would need to either generate more
revenue or reduce the budget.
Mr. Painter continued to address slide 9. He stated that
another difference in opinion would be whether it was more
important to avoid broad-based taxes and taxes to
industries or to have distributional equity where the
impact of reduced PFDs and impact of dividends were equal
across the income bracket. He remarked that the two options
were opposing ideas where fundamentally it would not be
possible to come to the same evaluation of a plan if there
was disagreement about the relative importance of the two
ideas. Another topic addressed by the committee was whether
it was important to maintain downward pressure on spending
or if cuts had already gone too far. He stated that the
governor's plan fundamentally sided with the idea that
further downward pressure on spending was needed. He noted
that some of what had been said during the current
committee discussion was there may be needs beyond the
governor's proposed plan. He clarified that the two ideas
were not compatible within the same fiscal plan because the
goals were fundamentally different.
3:29:25 PM
Mr. Painter concluded his analysis of the governor's fiscal
plan on slide 10. He remarked that it was difficult to
provide analysis from a nonpartisan standpoint because of
the differences in the goals and metrics for success. He
provided questions for the committee to consider [shown on
the slide]:
• Which elements of a plan should be constitutional, and
which should be statutory?
• If the Legislature does not agree with the Governor's
spending reduction plan, should the difference be made
up with more revenue or with lower PFDs?
o This question could be flipped around in any
direction.
• If (when?) oil revenue declines substantially in the
future, will this system still be sustainable?
• Would voters approve this constitutional amendment
(HJR 7, Permanent Fund)? What about HJR 6 (spending
limit) and HJR 8 (voter approval of taxes)? Are all
necessary for the Governor's plan to work?
Mr. Painter elaborated on the above questions beginning
with the first bullet point. He asked whether the POMV draw
should be in the constitution or in statute. He asked
whether some level of dividend and a formula needed to be
in the constitution or in statute. He asked whether the PCE
Fund should be moved into the Permanent Fund, dealt with in
the constitution, or left in statute. He moved to the
second bullet point. He stated that the question could be
flipped in any number of ways. For example, if a legislator
did not believe the $300 million of new revenue was
realistic, it was appropriate to ask whether it should be
made up with lower PFDs or lower spending. He stated the
different scenarios brought tradeoffs for each of the
pieces involved in balancing the budget. He advanced to the
third bullet point. He asked about the sustainability of
the system the governor proposed to constitutionalize. He
asked whether the plan would only be sustainable at the
current forecast. He stated that to some degree anything
could be sustainable if the state taxed enough. He
questioned whether it was desirable or not. He asked
whether the proposed dividend level would be workable if
oil prices and oil revenue declined in the future. He
concluded with the fourth bullet point. He asked whether
all components of the governor's proposal were necessary
and whether the plan fall apart if one of the proposals
passed and the others did not. He believed the question
needed further scrutiny.
Co-Chair Merrick thanked the presenters. She remarked that
there was a long road ahead.
ADJOURNMENT
3:32:59 PM
The meeting was adjourned at 3:32 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HFIN Gov Fiscal Plan LFD 6-8-21.pdf |
HFIN 6/8/2021 1:30:00 PM |
|
| OMB and LFD Fiscal Model Assumption Comparison 6.2.2021.pdf |
HFIN 6/8/2021 1:30:00 PM |
HFIN OMB Fiscal Plan |
| HFin - OMB 10 Year Plan 6.8.21.pdf |
HFIN 6/8/2021 1:30:00 PM |