Legislature(2021 - 2022)ADAMS 519
01/21/2022 01:30 PM House FINANCE
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| Audio | Topic |
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| Start | |
| Presentation: Fy 23 Fiscal Overview 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
January 21, 2022
1:32 p.m.
1:32:55 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:32 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen (via teleconference)
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
Representative Ben Carpenter
ALSO PRESENT
Alexei Painter, Director, Legislative Finance Division
SUMMARY
PRESENTATION: FY 23 FISCAL OVERVIEW LEGISLATIVE FINANCE
DIVISION
Co-Chair Foster reviewed the meeting agenda.
^PRESENTATION: FY 23 FISCAL OVERVIEW LEGISLATIVE FINANCE
DIVISION
1:34:18 PM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
provided a PowerPoint presentation titled "Overview of the
Governor's FY23 Budget," dated January 21, 2022 (copy on
file). He reviewed the presentation outline on slide 2:
• Update on Fiscal Situation
• Legislative Finance's FY23 Budget Baselines
• Governor's FY23 Proposal and FY22 Supplementals
• Long-Term Outlook and Governor's 10-Year Plan
• Federal COVID-19 and Infrastructure Funds
Mr. Painter began with an update on the state's fiscal
situation on slide 3 and reported that the current
financial situation was much improved from the previous
year. He detailed that the record investment performance in
FY 21 helped the Permanent Fund's values and the state's
retirement system. The current high oil prices were helping
the state's revenue situation. The Department of Revenue
(DOR) fall revenue forecast called for $1 billion more
unrestricted general fund (UGF) revenue in FY 22 than the
spring forecast and about $800 million more in FY 23.
Before any supplementals there was a $428.6 million pre-
transfer surplus in FY 22. He highlighted the surplus was
over $1 billion after the use of the Statutory Budget
Reserve (SBR) and the American Rescue Plan Act (ARPA) funds
for revenue replacement. He noted the SBR and ARPA funds
did not really reflect the ongoing size of the surplus or
deficit, but the two sources made more money available with
a majority vote without having to access any state savings.
1:36:09 PM
Mr. Painter turned to a graph showing revenue over the past
decade on slide 4. He highlighted that the last year the
state had a balanced budget was FY 12 and it appeared there
may be a balanced budget in FY 22. The chart showed revenue
had declined and reached a low in FY 17, followed by a
slight increase and subsequent drop. He reported that
revenue had increased and was currently around the level
seen in FY 14 at approximately $6 billion. He highlighted
that in FY 14, the state had been running a substantial
budget deficit, whereas in FY 22, the state would be
running a substantial surplus. He explained that not only
had revenue increased, but the state was spending much less
than it had around FY 14.
1:37:10 PM
Mr. Painter advanced to slide 5 and discussed that DOR had
changed its oil price forecast methodology in the current
year. He explained that until 2019, DOR had used a
"modified Delphi" approach based on the average of
predictions made by a group of stakeholders including state
economists, Legislative Finance Division (LFD) staff, and
university staff. He explained there had been problems with
a timing lag between forecasting session and forecast
release, causing DOR to frequently diverge from the method.
Additionally, the methodology was not transparent, no
outsider could validate the forecast. He expounded that LFD
had participated, but it did not know other stakeholder's
predictions. He detailed there had been no way anyone could
identify whether it was a good or bad forecast.
Mr. Painter continued to review slide 5. He explained that
starting in 2019, DOR began using the futures market (based
on the international benchmark Brent crude) for the first
two years and then held the price flat, adjusted for
inflation going forward. He elaborated that DOR had
determined at the time that the methodology was no less
accurate and potentially more accurate than its prior
forecast. The methodology was also transparent. He detailed
that LFD could look at the futures market to determine how
DOR had come up with the price. He believed transparency
was an improvement. In 2021, DOR had done more statistical
analysis and found that using the futures market for more
years improved accuracy, rather than following inflation.
Starting in the fall 2021 forecast, DOR used the futures
market through FY 29 and had found it to be the most
accurate method. He stated that LFD had generally been
supportive of the changes because the goal seemed to be to
improve transparency. Additionally, the method was driven
by data indicating the new methodology was more accurate
over the long-term. He added that DOR had consulted LFD
throughout the processes.
1:39:59 PM
Representative Wool asked if the futures market price
reflected the price a person would pay at present for oil
to be delivered in 2029.
Mr. Painter replied, "Basically, yes." He elaborated that
much of pricing was speculation and not necessarily the
people who owned tankers. He clarified that the futures
market was not actually a future prediction of oil. He
explained there may be some inherent biases in the futures
market that made it a bit different than a forecast. He
explained it was the best analog available, particularly
because Alaska North Slope (ANS) crude was not
internationally traded or forecast. He thought DOR's
analysis showed the futures market was more accurate than
using analyst predictions and other similar methods that
were dated. He agreed the futures market was a speculation
game and did not really try to predict the price.
Representative Edgmon referenced DOR's intention to update
its forecast on a monthly basis. He asked if he had heard
the Office of Management and Budget (OMB) director [Neil
Steininger] had stated the previous day that the monthly
forecasting would feed into the 10-year projection.
Mr. Painter replied that he could not speak for the
administration, but it was his understanding DOR was using
the monthly forecasting for the fiscal model posted on the
department's website. He continued that the official budget
would be built on the fall forecast and updated when the
spring forecast came out. He did not believe DOR intended
to update anything else with the monthly amounts other than
the DOR fiscal model.
Representative Edgmon thought the monthly information would
be confusing when it was provided in addition to the spring
and fall forecasts.
Mr. Painter responded he could see both sides, where there
was an advantage to having the most updated information
even if it was a little more confusing to have to change.
He considered whether out of date information should
continue to be used when things were changing rapidly,
merely because it was what everyone was used to. On the
other hand, ideally, the state would not be watching the
oil market "this closely" to make fiscal decisions, because
oil is a volatile commodity. The fact that oil revenue may
change by hundreds of millions of dollars from month to
month illustrated the state should not be budgeting that
close to the line. For example, the state should not be
saying a $27 million surplus was sufficient to have
comfort. He stated that having the updated information may
be useful to know the margin but spending every penny of a
volatile commodity would always be very risky. He could see
where there would be problems if people tried to do that
with the new numbers [provided monthly by DOR].
1:43:57 PM
Representative Edgmon believed the legislature needed to be
mindful that any change in the monthly numbers should not
be used to project out through the remainder of a fiscal
year. He noted there could be downward or upward
trajectory.
Co-Chair Foster stated it was a recurring question. He
stated that whatever the state ended up doing should be
consistent.
Representative Rasmussen asked if LFD had any data about
the income on a monthly basis from prior years and the oil
price at the time. She was interested in gathering
information to determine whether there was a trend. For
example, if oil prices tended to be higher in the second
quarter and lower in the first quarter. She thought it
could help legislators going through the budget process.
She asked if the governor's proposed budget spent down to a
close margin. She stated her understanding there was a bit
of a surplus [under the governor's proposed budget].
Mr. Painter answered that oil prices did not have
seasonality, whereas production did. He believed looking at
revenue on that basis would show some seasonality driven by
production. He relayed that LFD would work with DOR to
follow up with information. The governor's budget had a
post-transfer surplus of $26.7 million in FY 23 and did not
access the Constitutional Budget Reserve (CBR) or any other
fund as a stopgap. Any gap that happened to occur later in
the year could be addressed via the supplemental budget. He
stated that the governor's FY 23 did not build in much of a
margin based on the fall forecast; however, based on the
updated numbers there was a significant margin. He
elaborated that in FY 22, the governor's budget had a
surplus of about $113 million. He stated given the higher
oil prices and the fact that FY 22 was over halfway over,
the surplus was likely close to sufficient. However, the
$26.7 million equated to [an increase or decrease in oil
of] about $0.50 per barrel, which did not provide much room
for oil prices to move and make the target without a
backstop. In the past, the CBR had been used as backstop if
a deficit opened up. He added that the governor was not
seeking that language in the FY 23 budget.
1:47:18 PM
Representative Rasmussen asked if the legislature could put
backstop language in the budget to provide more flexibility
if there was a substantial change in oil prices. She asked
if it would require a three-quarter or two-thirds vote.
Mr. Painter replied that using funding from the CBR would
require a three-quarter vote. He explained that adding the
language to the budget would be essentially the way the
budgets had been done up until the last year. The CBR would
act as a deficit filler and backstop fund.
Mr. Painter moved to a chart reflecting an ANS price
forecast comparison on slide 6. The blue line represented
the official fall forecast and the green line reflected
DOR's previous forecasting methodology that increased with
inflation. He pointed out that the green line was in line
with the current forecasts for a couple of years and was
then significantly higher because the current expectation
in the futures market was that prices were on a downward
trajectory after the next several months. The red line
reflected the futures market dated January 11, 2022. He
noted that DOR had used futures market data from January
13; therefore, the numbers were very close but not
identical. Prices were higher in the futures market, but
the futures market anticipated the current pricing was
passing and indicated by FY 25/FY 26 there was no change
from what the fall forecast had shown before. He
highlighted that the market seemed to indicate the current
higher oil prices may not last.
1:49:50 PM
Mr. Painter turned to slide 7 and addressed a chart showing
the UGF budget and revenue from FY 12 through FY 23. He
noted the bars on the chart reflected spending and the area
behind the bars indicated revenue. He highlighted that FY
12 was the last year with a surplus and deficits began in
FY 13. There was a surplus in FY 22 prior to supplementals.
He relayed that the governor's supplementals would take the
budget back to a deficit situation. There was a deficit in
FY 23 that was filled with American Rescue Plan Act (ARPA)
revenue replacement. He explained that in FY 14 when the
state had revenue similar to the current level, the budget
had been $2 billion higher, resulting in large deficits.
The budget was now roughly balanced at that level. He
stated there had been a significant change in the spending
line even as revenue had mostly recovered with the help of
the POMV draw.
Vice-Chair Ortiz asked why there had been a large drop in
statewide expenditures since FY 15.
Mr. Painter answered the drop resulted from two principal
reasons. He explained that an additional contribution of
$2.3 billion above the normal cost had been made to the
state's retirement system in FY 15, which had greatly
reduced the cost of retirement. The second reason was oil
and gas tax credits based on a percentage of production tax
revenue. He detailed that during years with high oil
revenue, there had been tax credit purchases ranging
between $500 million and $700 million. In years with low
revenue, the number was down below $100 million in many of
the years. He explained the result had been much smaller
statewide items as well.
1:52:09 PM
Mr. Painter turned to slide 8 and showed a chart reflecting
the CBR and Statutory Budget Reserve (SBR) fund fiscal year
end balances from FY 12 through FY 23. The red portion of
the bar reflected the SBR, and the blue portion reflected
the CBR. The blue checkered section of the bars reflected
the portion of the CBR due to the FY 21 sweep, which was
not reversed in the FY 22 budget. He explained that LFD
estimates were slightly lower than OMB's because LFD had
not updated the information since the previous year. He
explained that LFD was waiting for audited numbers from the
Division of Legislative Audit. He detailed that OMB had
used pre-audited numbers. He noted that LFD had used pre-
audited numbers the past year, but the numbers had turned
out to be pretty far off. The LFD chart showed about $1.2
billion in the CBR. He reported that a bit over $400
million was due to the FY 21 sweep. The chart separated out
the information to clearly show the impact.
Representative Edgmon referenced the [ongoing] conversation
about how much should be in the CBR. He recalled that the
former LFD director David Teal had testified around
2012/2013 that the balance in the CBR should not drop below
$5 billion. He stated that the number had subsequently come
down. He highlighted there was currently a conversation
about a balance of $800 million. He asked for verification
that if the oil revenue projections did not pan out, the
CBR would be the cushion. He remarked that in the
conversation about a fiscal plan, he had not heard what the
appropriate amount of savings in the CBR may be. He asked
about the desired ratio of savings to expenditures. He
asked if LFD had contemplated putting something forward
(possibly in statute) specifying that the CBR should be at
a specific level in comparison to state spending.
Mr. Painter replied that LFD had looked at what other
states had in their rainy day funds. He noted it was not
really applicable because their revenue was much more
stable. He highlighted that Minnesota tied its reserve
balance target to the expected volatility of its revenue.
He elaborated that Minnesota specified it should have
enough in savings so that 95 percent of the time it could
get through the next two years on savings accounts without
making any policy changes. He relayed that LFD had run its
own version of the method the past year to determine how
much money would be needed in Alaska given its much higher
volatility. He explained that Minnesota's revenue was based
on broad-based taxes and did not have much volatility. At
the time, it had been very difficult to come up with a
number for Alaska due to the large structural deficit.
Mr. Painter offered that because the state's budget was
closer to balanced, LFD could run the numbers again. He
believed it depended on the policy objective. For example,
he considered whether the determined amount should be a
multiplier of the budget or based on expected volatility.
He noted that the constitution's provision for the CBR did
not have a target balance. The provision specified the fund
should be paid back in full. He considered it may be that
having $13 billion in the CBR was never really a desirable
objective. He stated Representative Edgmon was right that
it may be reasonable to consider other values as a more
reasonable target for the CBR based on the size of the
budget or expected revenue volatility.
1:56:59 PM
Representative Rasmussen kept hearing that more of the
state's budget was now being funded through the structured
draw. She asked if it was considered to be a more stable
revenue stream because of its predictability. In the
context of a rainy day fund, she asked whether any other
states had an account like the Permanent Fund.
Mr. Painter confirmed that POMV draw greatly reduced the
state's revenue volatility from the prior reality where
petroleum accounted for the majority of incoming revenue.
He noted that investments themselves were a fairly volatile
commodity. He remarked that state revenue was diversifying
and there was a more stable amount due to the POMV;
however, there was still quite a bit of volatility
remaining compared to other states; however, Alaska's
current volatility was much less than it had been a decade
back. He relayed that the other states did not really have
a permanent fund. He stated that North Dakota had a fund
that was kind of similar. Any somewhat similar funds in
other states tended to be designated to particular
purposes. He believed the closest was North Dakota. He
elaborated that the fund in North Dakota was a little
behind Alaska's; the fund was smaller, and the state was
just beginning to use it for any purpose. Texas also had a
sovereign wealth fund. He relayed that none of the funds in
other states came close to Alaska's when compared to the
size of its budget.
Representative Rasmussen provided a scenario where the CBR
was depleted and there was a budget deficit. She asked what
other fund sources would remain apart from the Permanent
Fund Earnings Reserve Account (ERA).
Mr. Painter replied there were designated savings accounts,
albeit fewer since the sweep occurred. He noted that the
two larger designated funds used to be Power Cost
Equalization (PCE) and the Higher Education Investment
Fund; however, PCE was the only remaining of the two. The
PCE was the largest of the remaining funds apart from the
CBR and ERA. He noted there may be a small amount in the
SBR. He added other policy choices could be made about
reducing expenditures mid-year.
2:00:08 PM
Representative Rasmussen asked for the threshold to access
the CBR money. She asked for the threshold to access the
ERA and other funds.
Mr. Painter replied that a three-quarter vote was required
to access the CBR, whereas a simple majority was required
to access the other accounts. He noted that the principal
of the Permanent Fund could not be drawn upon.
Vice-Chair Ortiz looked at the note on slide 8 showing a
$1.2 billion balance in the CBR in FY 23 with $400 million
due to the FY 21 sweep. He asked whether the $400 million
included the higher education learning fund.
Mr. Painter responded that the vast majority of the $400
million was from the higher education fund.
Vice-Chair Ortiz asked for verification the funds had been
swept into the CBR.
Mr. Painter replied that the funds had effectively been
swept on June 30, 2021, but from an accounting perspective
they were waiting for the audited financial reports to
transfer the correct amount. From a legal perspective, the
transfer had occurred on June 30, 2021.
Representative Wool referenced a lawsuit related to the
higher education fund. He asked if the ruling went a
certain way, the $400 million would leave the CBR.
Mr. Painter answered affirmatively. He elaborated that LFD
estimated about $800 million, potentially a little higher.
He believed OMB's estimate was about $1 billion based on
more lapsed funding occurring the previous year than
predicted.
2:02:20 PM
Representative LeBon reminded the committee that the
previous session the House passed a bill intended to give
the commissioner of DOR the flexibility to secure short-
term financing if needed. The intent of the legislation had
been to give DOR another tool to bridge revenue shortfalls
through a bank line of credit or a revenue anticipation
note. He remarked that there was certain predictable
funding coming from the Permanent Fund that could be
planned for. He explained that a revenue anticipation note
would leverage the receipt of cash into the future by using
the funding at present to fill short-term gaps that may
arise. He recalled that $2 billion had been stated as the
right amount of working capital in the CBR when he had been
elected three years earlier. He noted that at one time the
number may have been $5 billion. He stated that if the
[short-term financing] legislation was signed into law, DOR
would have another tool to smooth out volatility in its
cash flow. He hoped it became law because the tool would be
valuable.
Representative Johnson asked if it was fair to say that
revenue was based on a projection and the budget was built
on that projection. She was hearing from some committee
members who were not comfortable with the increased revenue
projection from the administration.
Mr. Painter answered it was where prices were at present,
and when building a budget, it was probably the number to
use. He cautioned that because oil was volatile and the
state no longer had the savings balances it once had as
backstops, it was necessary to keep volatility in mind when
building a budget. He looked at slide 7 and explained that
in past years with $10 billion in revenue and $9 billion of
the amount coming from oil, the state had $12 billion in
savings. He explained that in FY 13, when there had been a
deficit, the budget had been built on $8 billion in UGF
revenue that turned out to be $7 billion. He stated that
most people did not realize the state had a deficit that
year and it had not mattered that much because there had
been so much in savings. The state had known oil would be
volatile but there had been a lot of money in the SBR to
pick up the slack if needed.
Mr. Painter explained the state was in a different
situation at present where it did not have the large
savings account; it had the ERA. He encouraged the
legislature to be more cautious than legislators were a
decade back when there had been ten times as much in
savings. He encouraged the legislature to try to recognize
that if oil remained high in FY 23, the funds could be
spent in the supplemental the following year. He stated it
was the spirit of the governor's budget where many of the
capital expenditures were moved to FY 22 to take advantage
of the higher revenue. The idea was "don't increase your
base based on a volatile commodity."
2:06:46 PM
Representative Johnson saw that the Permanent Fund earnings
had lost close to $1 billion in several days. She
recognized volatility in the market and oil prices, which
was the reason to rely on the state's experts making
projections. She noted that the projections would not
always be perfect but should not be discounted. She would
not do that in her personal business. She asked if Mr.
Painter was saying a transfer should be made to the CBR.
Mr. Painter clarified that he was not making a specific
policy recommendation, which was not his role as
nonpartisan staff. He recommended being mindful of
volatility and uncertainty in some portions of the state's
revenue. He advised accounting for the situation in some
way. For example, not spending all of the funds, having
backstop funds from another fund, or leaving money on the
table to spend in the supplemental the following year. He
noted the latter option had been a common practice in the
mid-2000s during the revenue spike. He stated it was
another strategy that could be used to deal with
volatility. He was not making a specific recommendation; it
was up to the legislature to decide.
2:09:04 PM
Co-Chair Foster highlighted that either a press release or
an email from the administration's press team had specified
that the monthly forecasts from DOR (showing a larger
surplus than the original forecast) were not subject to the
same data collection rigor that was used in creating the
fall and spring forecasts. He noted it was a word of
caution on whether or not to rely on the monthly forecast.
Representative Rasmussen asked for the total state spend 10
years back when there had been $12 billion in the CBR. She
asked for the balance of the Permanent Fund at the time.
Mr. Painter turned to slide 7 and answered that the total
UGF budget in FY 12 was just under $8 billion. He relayed
there had been over $10 billion in UGF revenue. He noted
the numbers were based on current fund classifications. He
pointed out that the dividend had not been considered UGF
at that time. He would follow up with the Permanent Fund
numbers.
Representative Rasmussen stated that ten years back the UGF
budget was almost double its current size. She remarked
that spending levels had been brought down significantly.
She reasoned the state did not need as much money in
savings as it did a decade back because the budget was half
the size.
Mr. Painter answered it was true to some extent, although a
lot of the difference was in the capital budget, which
could vary from year to year. He explained that the
operating budget was fairly comparable. The graph [on slide
7] showed how little agency operations changed. He
elaborated they had peaked in FY 15 and had been a little
higher in FY 13 than the current spending, but only by a
couple hundred million dollars. The primary difference
between the budget at present and ten years back was the
size of the capital budget. He explained that in those past
years, the capital budgets had been $1 billion to $2
billion UGF, which were not levels that would be
contemplated at present.
2:12:48 PM
Representative Rasmussen stated there were UGF dollars
being committed that were almost half of the current
expenditures.
Mr. Painter estimated it was about two-thirds, but agreed
it was significantly lower.
Representative Edgmon thought the record capital budget of
approximately $2 billion UGF had occurred around 2012 or
2013. He stated it was difficult to compare spending at
that time to current spending. He observed the state lived
in a world of oil price volatility that had been the
state's good and bad fortune for many years. He added stock
market volatility to the list after the passage of SB 26
[POMV draw legislation] in 2018. He highlighted there was
also political volatility regarding the Permanent Fund
Dividend, which created expectations the legislature needed
to grapple with in ensuing years. He emphasized the issue
drove what was happening in the building and had been for
some time. He wanted to add the topic to the conversation.
2:14:26 PM
Mr. Painter advanced to slide 9 titled "LFD's Budget
Baselines." He discussed that a couple of years back the
legislature started the practice of talking about the
budget in terms of a baseline for each year, rather than
comparing to the prior year in order to have a clean
starting point. He stated it was similar to the [budget]
subcommittee process that did not start with the previous
year's budget but used the adjusted base that removed one-
time items and added salary adjustments to try to get rid
of year-to-year distortions. He stated LFD had created its
own baselines, which were similar to the concept, but apply
to the entire state budget. He reviewed the baselines:
• Two baselines to consider: current policy and current
law. These are intended to create a "clean" starting
point for the current budget rather than previous
years that are distorted by one-time items.
• Both scenarios use a slightly modified version of the
FY22 Adjusted Base for agency operations.
• Current policy assumes roughly $1,100 PFD, continued
partial funding of school debt, REAA Fund, Community
Assistance, and Oil and Gas Tax Credits.
• Current law assumes statutory PFD, full funding of
school debt, REAA Fund, Community Assistance, and Oil
and Gas Tax Credits.
o Statutory PFD is projected to be about $2.76
billion, paying about $4,200 per recipient.
o Fully funding all statewide items that were
partially funded in FY22 are estimated to be
about $167.9 million UGF more than maintaining
FY22 funding levels.
Mr. Painter elaborated that for statewide items, LFD
assumed the same percentage funding achieved the previous
year where there had been some vetoes to statewide items
and some that were impacted by the failure of the CBR vote.
The current law assumed the items were all fully funded.
Excluding the statutory PFD projected to be $2 billion, the
difference between the two scenarios was about $167.9
million.
2:16:13 PM
Mr. Painter moved to a table on slide 10 reflecting agency
operations changes from FY 22 to FY 23 baseline. He relayed
that in the baseline for agency operations there was quite
a bit of downward pressure on the budget, mostly due to
changes in retirement. He elaborated that SB 55, passed by
the legislature the previous year, moved a portion of
retirement funding to agency operations budgets before more
of it was captured in statewide items. He highlighted that
$29.7 million UGF of reductions were in the current budget
because of the investment performance allowing lower
contributions. He explained that the "on behalf" rate went
from 30.11 percent to 24.79 percent. Additionally, when the
legislature passed SB 55, many agencies had been uncertain
how much non-general fund sources they could collect and
could not immediately build it into rates they were
charging. He furthered that in the current budget much of
the UGF given to agencies had been changed to other fund
sources to fully utilize federal and other fund sources,
which saved another $14.7 million. Between the investment
performance and fund source changes, there was an "off the
bat" reduction of $45 million in the budget due to
retirement.
Mr. Painter continued to discuss LFD's budget baselines on
slide 10. He highlighted a budget reduction of $18.7
million due to the lower projection for the student count
in public K-12 schools. Much of the situation was due to
uncertainty about the pandemic and continued movement to
correspondence school, which received a lower rate.
Additionally, several districts were under the hold
harmless provisions as students transitioned from brick and
mortar schools to correspondence. He noted schools received
a declining amount over time under the hold harmless
provisions. He elaborated that depending on how things went
with the pandemic in the next year, the situation could
change substantially if the number of students in
classrooms significantly increased.
Mr. Painter continued to address slide 10. There were some
contractual changes, mostly health insurance. He stated
that the rates were going up for many state employees.
There was a removal of one-time items. All of the items net
to a reduction of $65.8 million from the previous year to
the current year, prior to talk of any policy changes. He
relayed there was substantial downward pressure on the
budget from the items [on slide 10] that provided a much
lower starting point for the budget process than the
previous year.
2:19:02 PM
Mr. Painter briefly addressed statewide items detail on
slide 11. He believed the current policy scenario was
slightly confusing because of items that had happened
"oddly" the previous year. He explained that the CBR vote
failure left school debt reimbursement and oil and gas tax
credits partially funded. The governor had vetoed UGF to
community assistance and the Regional Educational
Attendance Area (REAA) fund. The LFD baseline left the
percentages of funding in the current policy scenario and
current law assumed all of the items were paid out to their
statutory level.
Mr. Painter looked at the current policy and current law
scenarios for FY 23 on slide 12. He explained that under
the current policy budget, with the $1,100 PFD, there would
be a surplus of about $750 million. Under the current law
budget with the statutory PFD, there would be a deficit of
about $1.4 billion. He remarked that when considering
whether the state had a structural deficit, it depended on
what a person considered as the baseline. He detailed that
if the statutory PFD was still the baseline, there was
still a significant structural budget deficit even with the
higher oil price expectation. He elaborated that if some
other PFD formula was contemplated, it could eliminate a
structural budget deficit. He reiterated that based on the
current statutes there would be a structural budget deficit
regardless of the price of oil.
Representative Wool looked at slide 12 and observed that
before factoring in the PFD, the current policy and current
law scenarios were similar at $4.4 billion and $4.6 billion
respectively. He remarked the PFD skewed the subtotal to a
surplus or deficit. He noted he had recently heard it
mentioned that the exemption for property tax for senior
citizens was a law that was not followed, thus LFD did not
consider it in its policy versus law discussion. He
remarked the PFD law had not been followed in some years.
He wondered when LFD would exempt the PFD from the current
law baseline scenario.
Mr. Painter replied there was some arbitrariness regarding
which statutes LFD included in the current law scenario. He
stated that things that had not been funded in decades fell
off [the list of items to include]. He cited the property
tax [mentioned by Representative Wool] as an example in
addition to the former longevity bonus program that had
been unfunded during the former Frank Murkowski
administration. He confirmed that at some point LFD had to
make a call to drop things from the baselines. He did not
believe they were ready to make the call on the PFD. He
stated if the situation persisted for another decade, the
PFD may be dropped from the scenario.
Vice-Chair Ortiz looked at the PFD line under the current
law scenario showing $2.7 billion. He asked what the
deficit would be under the governor's 50/50 split scenario.
Mr. Painter answered that the 50/50 scenario was not
included in either scenario because it was not law or
policy at present. He estimated the scenario would be about
$1 billion less. Under the current law scenario with a
50/50 plan, the budget deficit would be similar to the
governor's budget at about $400 million.
Co-Chair Foster looked at the current policy surplus of
$752 million on slide 12. He asked if the information took
ARPA funds into account. He asked if the governor's current
budget used $375 million in revenue replacement.
Mr. Painter replied that the ARPA funds had not been
considered in either of LFD's scenarios. He explained that
while the funds had been used the previous year, the
funding was temporary and would not be built into the
baseline. He relayed that using ARPA for revenue
replacement would change the numbers [on slide 12].
2:23:48 PM
Mr. Painter advanced to slide 13 and discussed the
governor's FY 22/FY 23 budget compared to LFD baselines. He
reported that for agency operations, the governor's budget
was $80.1 million above the LFD baseline. He noted the
committee had heard from OMB the previous day that the
governor's budget was up $16 million or $17 million from
the previous year [note: Mr. Painter revised this number to
$14 million on slide 15 later in the presentation]. He
stated it was because the administration had the "winds at
their back" of items like SB 55. In terms of policy
changes, the governor's budget [for agency operations] was
up $80 million. He noted the figure was an increase of
about 2.1 percent, which was in line with inflationary
growth. The governor's budget for statewide items matched
the current law scenario and fully funded the items. He
highlighted that the governor's proposed capital budget was
substantially lower than the previous year and fell below
LFD's scenario by $88 million. He noted part of the
difference was that the governor's budget funded items in
the supplemental and other ways.
Mr. Painter continued to review slide 13. The governor's
50/50 PFD scenario was roughly in the middle between the
current policy with an $1,100 PFD and the current law,
which would cost another $1.084 billion. The governor's
budget resulted in a $348 million pre-transfer deficit.
Mr. Painter paused to explain why LFD used the pre-transfer
deficit as opposed to the post-transfer deficit. He
highlighted that up until a couple of years back, when the
legislature was building its budgets with deficits, there
had been years where the deficit had been $3 billion or $4
billion, and it had been determined that whatever the
deficit was would come out of the CBR. For various reasons,
over the past couple of years, things had been done
differently given the risk the CBR vote would fail. He
explained that instead of using the CBR as a deficit
filler, the budget would directly spend from the CBR or
SBR, with the result being a balanced budget. The practice
had been used two years back where one-quarter of agency
budgets had been directly funded out of the CBR. He noted a
similar method had been used the in the past year with SBR
funding.
Mr. Painter explained there was not really a difference
between saying a $3 billion deficit would be filled with
funds from the CBR versus transferring $3 billion from the
CBR into the budget. He viewed the two scenarios as
identical. He pointed out that either of the options
resulted in a deficit, no matter how the budget drew from
savings. He believed it was important to understand whether
the state had a balanced budget or not, which was the
reason LFD used the pre-transfer deficit. He noted it
included ARPA revenue replacement, which was mechanically a
fund transfer (the funds were transferred into the General
Fund and then spent out of the General Fund). He furthered
that OMB showed spending out of the SBR directly or
spending ARPA revenue replacement as revenue in its fiscal
summary. He explained that LFD did not believe the method
comported with the purpose of the deficit number. He
explained that by constitution, Alaska's budget had to be
balanced.
Mr. Painter explained that the conversation about the
budget deficit was really about ongoing revenue to ongoing
expenditures, which was the information the pre-transfer
number tried to capture. He explained it was the reason
LFD's baselines showed the governor's budget with a deficit
of $348 million made up with ARPA revenue replacement.
Whereas OMB viewed the budget as balanced. He added that
higher oil prices would result in a surplus regardless. He
summarized that the pre-transfer number was a truer picture
of the ongoing fiscal situation.
Co-Chair Foster underscored the point made by Mr. Painter
related to a pre-transfer and post-transfer deficit. He
stated that pre-transfer referred to the budget prior to
transferring any money to balance the budget via savings or
ARPA funds.
2:28:36 PM
Representative Rasmussen asked how many years had seen pre-
transfer deficits in the past decade.
Mr. Painter responded that there had been pre-transfer
deficits from FY 13 through FY 21. He relayed that if there
were no supplementals in FY 22, there would be a pre-
transfer surplus. The governor's proposed budget had a pre-
transfer deficit for FY 22.
Representative Rasmussen stated her understanding that the
word "deficit" did not necessarily mean there would be a
deficit because the state was required to have a balanced
budget. She surmised that saying the pre-transfer deficit
meant the state would end up with a deficit was not an
accurate statement.
Mr. Painter thought it depended on how the word deficit was
being used. He explained that the post-transfer deficit
essentially considered whether a deficit remained after
money had been moved around and that any remaining deficit
may be filled with funds from the CBR. The final number
would be after a deficit was filled by "whatever source"
and there could not be a deficit. On fiscal summaries, LFD
had always shown a pre-transfer deficit and a post-transfer
deficit after money had been moved around. He noted it was
the method OMB had used until two years back. He explained
there could be a pre-transfer deficit that was filled with
something, resulting in a balanced budget at the end of the
day. He stated it got down to what was meant when the state
was said to have a deficit. He stated it was the reason LFD
was trying to be very clear. He relayed that when he stated
there was a deficit, he meant there was a pre-transfer
deficit. He furthered that the pre-transfer deficit could
be filled with savings, but it was a pre-transfer deficit.
Representative Rasmussen stated her understanding that from
FY 13 to FY 21 the state had had a pre-transfer deficit
every year.
2:30:50 PM
Mr. Painter addressed highlights in the governor's budget
on slide 14:
• Includes supplemental PFD payment for FY22 to reach
50/50 and a 50/50 PFD in FY23.
• Agency Operations increases by $80.1 million (2.1%)
over LFD baseline in line with inflation assumption
of 2.0%.
• Fully funds statewide items.
• Pre-transfer deficit of $348.4 million in FY23 is
filled with $375.4 million of one-time use of ARPA for
revenue replacement.
• No reverse sweep or deficit-filling CBR language.
2:31:27 PM
Co-Chair Foster asked if the supplemental PFD was about
$1,200 per person and the full 50/50 PFD was $4,500.
Mr. Painter agreed that the 50/50 for FY 22 would be
another $1,200 [per person] in addition to the amount
already paid out. He clarified the amount in FY 23 would be
about $2,500 [per person].
Co-Chair Foster stated his understanding that the 50/50 PFD
would be $2,500 and a statutory would be about $4,500.
Representative Wool stated that since he had been in the
legislature the state had been operating at a deficit
(i.e., bringing in less revenue than the state expended).
He recognized the state had not had the problem through
much of the "oil years." He considered the budget in the
1970s pre-oil and understood there had been income tax and
school head tax. He surmised the budget and population had
been much lower at the time. He asked if the federal
government had helped or if the state had been operating
with a balanced budget before oil.
Mr. Painter answered that Representative Wool was basically
referring to the one decade prior to the Prudhoe Bay lease
sales. He reported that in the 1960s the state did not have
significant reserves and had run a balanced budget.
Subsequently, the Prudhoe Bay lease sale had resulted in
about $900 million that the state spent over the course of
several years. He elaborated that in those years there
would be a big transfer in showing a big surplus, followed
by some deficit spending as the lease sale money was spent
down in advance of the construction of the pipeline. He
explained that in the 1970s the state had run some budget
deficits as the money was spent down, but the situation had
been temporary until the pipeline got online.
2:33:41 PM
Mr. Painter addressed a short fiscal summary of the
governor's budget (UGF only) on slide 15. He corrected his
earlier statement about agency operations and stated they
were up $14 million. Statewide items were up $103 million,
and the capital budget was down. He stated that prior to
the PFD, the governor's budget was very close to the prior
year budget and was about $29 million higher. He explained
that before supplementals, with the larger PFD, the
governor's budget was significantly larger. He noted an
error on the slide that should read $955 [million].
Supplementals included in the governor's budget included
$796 million for the PFD and $135 million for other items.
He noted that many of the items in the latter category were
capital projects that had shifted because the revenue was
available. Additionally, there were more time sensitive
items in the fast track supplemental bill. In FY 22, there
was a pre-transfer deficit of $500 million with fund
transfers from the SBR and ARPA revenue replacement of
about $650 million, leading to a post-transfer surplus of
about $144 million in FY 22 with the governor's
supplementals. In FY 23, there was a $348 million pre-
transfer deficit filled with fund transfers mostly from
ARPA revenue replacement, leading to a $26.7 million post-
transfer surplus.
2:35:28 PM
Mr. Painter turned to slide 16 and shared that he would not
go into much detail on agency operations because OMB had
previously presented the information. He reported that
Medicaid was up by $45 million in the governor's budget due
to the expiration of the increased Federal Medical
Assistance Percentage (FMAP). He explained the amount had
been reducing the state's share by increasing the federal
share for a few years. There was a significant decrease in
the Alaska Marine Highway System (AMHS). The number was
down from $63.4 million UGF the previous year to zero. He
expounded that the governor's budget used federal
infrastructure funds in place of UGF. With no reverse sweep
the governor was requesting $33.6 million UGF from fund
changes to offset lost DGF due to the failure of the
reverse sweep. He stated that about two-thirds of the funds
were from the higher education fund.
Mr. Painter continued that the governor's budget included
$16.5 million in increases for state troopers, Village
Public Safety Officers (VPSO), and other items within the
Department of Public Safety. Under the Department of
Transportation and Public Facilities (DOT), $24 million in
federal funds had been used to offset general funds the
previous year. He explained a portion of the funds were
expiring, which resulted in a $10.9 million UGF increase.
There was still $22.4 million in federal funds within DOT
that would expire in the next couple of years; therefore,
the increase would likely occur again in the future. There
were a number of other increases in other agencies the
committee had heard about the previous day from OMB that
added up to a total of about $37 million.
Vice-Chair Ortiz referenced the $26.7 million projected
surplus for FY 23 on slide 15. He believed the governor's
capital budget proposed approximately $300 million in bond
sales in order to fund a more robust capital budget. He
stated it was at a debt. He asked for verification the
number was not included in the deficit or surplus figure.
Mr. Painter agreed. He elaborated that the timing of the
bond sales would enter the budget in FY 24. He relayed the
proposal of about $22.8 million in debt payments was
accounted for in the governor's 10-year plan. There would
not be any payments on the debt in the year of issuance in
2023.
2:38:32 PM
Mr. Painter looked at statewide items that totaled $517.6
million in the governor's proposed budget. He detailed that
school debt reimbursement, REAA fund capitalization, and
oil and gas tax credits were all funded at statutory
levels. Community assistance was funded with $30 million
for the PCE fund per statute. He noted that the statute for
the deposit specified the total deposit into the fund could
be $30 million per year or the amount to reach a $90
million fund balance. He reported that if the higher number
was sought, another $21 million UGF would be needed.
Mr. Painter discussed that state retirement payments were
down significantly by $116 million from the previous year
due to two factors. The first was investment performance
due to a record breaking year. Second, the Alaska
Retirement Management Board (ARMB) decided to adopt a zero
additional contribution rate for healthcare. He elaborated
that when the unfunded liability had developed, retirement
had been split into the pension and healthcare funds. He
explained that because AlaskaCare had done a good job
controlling costs, the healthcare fund was currently over
funded even as the pension side was still underfunded
(based on current actuarial projections). The ARMB's
decision generated a savings of $55.1 million in statewide
items plus another $15 million in agency budgets because of
SB 55. He highlighted that the policy decision by the board
helped the budget quite a bit. He noted the chair of the
board had specified it was a one-time item that would be
evaluated the following year to see how healthcare costs
were going. Based on the situation, the board may continue
to not fund healthcare, or they may resume depending on how
the fund looked. Therefore, the savings could not
necessarily be counted on going forward, but it was a help
in the current year.
2:41:06 PM
Mr. Painter discussed the governor's proposed capital
budget of $154.7 million UGF in FY 23. There was an
additional $93 million of supplemental projects. The
supplementals were split between the fast track bill and
regular supplementals with less time pressure. The governor
also had the general obligation bond mentioned earlier. He
remarked that university capital projects were quite a bit
larger than $154.7 million. He pointed out that the
governor was not yet trying to incorporate the federal
Infrastructure Investment and Jobs Act (IIJA) in his
capital budget, which may come in future amendments. The
governor's only use of the infrastructure money was in the
operating budget for AMHS.
Mr. Painter turned to slide 19 and shared that a long-term
outlook and governor's 10-year plan would be covered more
extensively in the following week. The LFD fiscal modeling
baseline assumed the governor's FY 23 budget grew with
inflation and that the governor would follow the published
debt table or other existing structure for future statewide
item amounts. He stated that normally LFD would assume the
statutory PFD; however, he had omitted the slide due to
time reasons. He would present on the topic the following
week. With the governor's 50/50 PFD plan, LFD's baseline
showed deficits in the range of $300 million to $500
million per year over the next decade - enough to drain the
CBR (at the $1.2 billion starting balance) by FY 25. The
governor's 10-year plan made several policy changes
relative to the baseline that would reduce the deficit and
maintain the CBR; it still had small deficits from FY 23 to
FY 29, but not enough to empty the CBR. There was a
significant difference between LFD's baseline of the
current budget growing with inflation and what the governor
was envisioning over the next decade.
Representative Edgmon stated that when looking down the
road five years, it was not possible to factor in federal
money coming into the state and what matching funds may be
necessary. Additionally, it was not possible to factor in
what the federal funding may do in terms of incurring
additional operating expenses. He believed there needed to
be some sort of an asterisk there.
Mr. Painter agreed. He stated that hopefully the state's
capital projects would also try to reduce operating costs
by dealing with energy and efficiency; however, there were
some projects that could increase costs. He concluded it
could go either way.
2:44:28 PM
Mr. Painter advanced to slide 20 showing the LFD baseline
and long-term outlook and governor's 50/50 plan. The slide
showed annual pre-transfer deficits in the neighborhood of
$300 million to $500 million (the largest was in FY 24 and
the smallest was in FY 27). He noted that the budget shrank
a bit in FY 26 because the bulk of the oil and gas tax
credits would be paid off in FY 25 based on following the
statute. If the statute was followed, the credits would be
mostly paid off in the next several years, which would
generate a savings and reduce the budget deficit beginning
in FY 26. Under the baseline, there would be enough in the
CBR and SBR to get through the next couple of years,
followed by the need for unplanned ERA draws if no other
policy changes were made. He discussed that the previous
year, the [legislative] working group had determined there
was a $600 million to $800 million ongoing gap under the
50/50 plan. He referenced the $300 million to $500 million
baseline deficit and pointed out the figures used by the
working group had come down due to investment performance
and higher oil prices.
Representative Rasmussen looked at the information shown on
slide 20. She observed that the pre-transfer deficit was
mostly filled with federal funds for the FY 23 budget. She
thought it meant the deficit should be balanced post-
transfer. She considered a scenario where the $483 million
[pre-transfer deficit] was cut out in FY 24 and taken from
the [$1.8 billion] PFD. She estimated it left the PFD cost
at about $1.3 billion. She asked for the approximate
dividend size under the scenario.
Mr. Painter replied that he would follow up with the
information.
Representative Rasmussen asked if it was roughly $700
million or so for a $1,000 dividend, assuming there were
about 700,000 Alaskan residents.
Mr. Painter answered that about 640,000 people received the
PFD and fixed costs went to PFD criminal and the PFD
Division's budget. He reported it was about $680 million
for a $1,000 PFD.
2:47:35 PM
Representative Rasmussen considered a scenario where there
were 700,000 Alaskans and $1.4 billion, there could
feasibly be a PFD of about $2,000 and it likely would not
lead to a deficit.
Mr. Painter agreed that it was roughly accurate. He would
follow up.
Vice-Chair Ortiz asked if the chart reflected a 2 percent
inflation rate in the budget.
Mr. Painter replied affirmatively.
Vice-Chair Ortiz asked if education funding that had been
one of the major drivers of the overall budget had not
increased 2 percent per year over the past five years. He
believed the education budget had basically remained flat.
Mr. Painter agreed. He elaborated in FY 19 and FY 20 there
had been funding outside of the formula that had not been
repeated in current years. The Base Student Allocation
(BSA) had been the same for about five years, but there had
been years of higher funding due to the outside of the
formula money.
2:49:15 PM
Representative Wool shared there had been an outside
consultant group that had presented to the committee on
Medicaid expenses and the rate of inflation. He thought the
governor's budget included a 1.4 percent inflation rate for
Medicaid. He stated that the information presented had been
rather scary due to the increase in the cost of medical
services. He remarked that Alaska exceeded the national
rate of medical charges. He noted Alaska had an aging
population needing medical services. He asked if Mr.
Painter had any comment on the increase of Medicaid or
Medicare.
Mr. Painter answered that the governor's 10-year plan
called for 1 percent annual growth in Medicaid spending. He
thought the baseline from the consultant report was in the
neighborhood of 4 percent. He believed the administration
was assuming some cost savings could be achieved in
Medicaid. He deferred to the Department of Health and
Social Services (DHSS) for detail. He reiterated that the 1
percent assumed there would be significant policy changes
in Medicaid. He did not believe the administration would
view it as a baseline.
Representative Wool stated that Medicaid expansion had
greatly expanded the number of people on Medicaid. He had
heard OMB state that the pandemic pushed a lot of people on
Medicaid who would hopefully soon get jobs and off
Medicaid. He was uncertain it would be a big cost saver. He
remarked that prior to the pandemic, the state's Medicaid
population was high in the 35 percent of population range.
He knew medical costs in Alaska were high and increasing.
He thought 4 percent sounded more accurate. He did not know
how much savings "they would get by...or changing the rules
that let people on Medicaid."
Mr. Painter replied that he was not a Medicaid expert, but
he noted that with the increase in FMAP, the state was not
permitted to remove people from Medicaid roles. There were
people on the Medicaid roles who may no longer qualify, but
part of the agreement with the federal government was the
state had to keep providing services to those individuals.
He clarified that one of the savings DHSS thought it could
achieve the following year to keep to the $45 million
increase, was reducing the Medicaid roles. He stated there
may be significant reason to believe Medicaid roles could
be reduced; however, it remained an open question.
2:53:08 PM
Mr. Painter moved to slide 21 and discussed policy changes
in the governor's 10-year plan. He highlighted that agency
operations were held flat in FY 24 rather than growing with
inflation. The items subsequently grew at 1.5 percent for
all items except Medicaid, which grew at 1 percent.
Beginning in FY 24 school debt reimbursement and the REAA
fund were not funded at the statutory level as they were in
the governor's budget for the current year. School debt was
funded at 50 percent and the REAA fund cap was reduced to a
flat amount at just over 50 percent. The governor's budget
assumed Public Employees' Retirement System (PERS) and
Teachers' Retirement System (TRS) healthcare contributions
were not funded going forward. The LFD baseline included
the contributions because it had been discussed as a one-
time item. He noted the governor had incorporated a general
obligation bond but was holding the capital budget flat at
$154.7 million per year with no inflationary growth. The
governor's budget assumed supplementals and lapse would
cancel out. He noted that LFD included a $50 million
assumption for supplementals. Lastly, the governor was
proposing to fill the budget deficit with $375.4 million in
ARPA revenue replacement in FY 23.
Vice-Chair Ortiz asked what would happen if PERS and TRS
healthcare contributions were not funded into the future.
He asked if it would result in a cost shift to local
communities. He wondered what savings were accomplished by
no longer making state healthcare contributions.
Mr. Painter answered that if the state's actuaries were
correct, there would be no impact because the fund had more
than enough to pay out future claims for the life of the
system. He explained that if healthcare costs were revised
upwards or the fund did not earn as much as anticipated,
the state could owe more money in the future. He reiterated
that based on current actuarial numbers, the healthcare
fund was over 100 percent funded, and as long as the
numbers held, there would be no impact.
Vice-Chair Ortiz recalled historically there were actuarial
numbers that had proved to be "quite faulty" and had
resulted in the unfunded liability prior to the $3 billion
transfer [made to pay down the unfunded liability]. He
asked if LFD had considered how much the state could rely
on actuarial projections into the future. He asked if there
were certain safety measures in place that had not existed
in the past when the errors had occurred.
Mr. Painter did not know the specifics on the steps ARMB
had taken to ensure the experience of the prior actuary was
not repeated. He knew the board looked more to external
validation that it had in the past in order to ensure the
actuarial information could be trusted.
Representative Edgmon remarked that throughout the budget
process the legislature spent substantial time on the
revenue side, but little time on the expenditure side. He
observed that 90 percent of the conversation in the current
meeting had been about the revenue side of the equation and
not on how the services impacted people. He considered
impacts such as protecting people, sending kids to school,
impoverished people, disabled individuals, economic impacts
on the public sector, and the health and wellbeing of the
private sector. He highlighted there was not a 10-year
forecast for the aforementioned items. He stated it had
always struck him as a "one-sided environment that was
decidedly two-sided."
2:58:11 PM
Mr. Painter looked at slide 22 comparing LFD's 10-year
baselines to the governor's 10-year plan. He noted most of
the difference in FY 23 was the supplemental assumption.
There was a $200 million difference in FY 24, much of the
difference was due to the year of no budget growth in the
governor's 10-year plan and his reduction of some statewide
items to 50 percent. The 1 to 1.5 percent growth rate in
the governor's budget occurred in future years compared to
LFD's 2 percent. He noted that the lower growth rate and
flat budgets compounded. The difference between the LFD
baselines and the governor's budget increased to $400
million by FY 31.
Representative Edgmon asked how many other states did a 10-
year plan.
Mr. Painter did not know the number, but the number was not
high.
Representative Edgmon stated the 10-year plan statutory
language had passed in 2008. He remarked that much had been
tied to volatility in oil revenue. He requested information
on how many other states had a 10-year plan.
Mr. Painter answered that LFD would provide the
information.
Mr. Painter addressed the long-term outlook and governor's
10-year plan on slide 23. He explained that applying the
governor's 10-year plan to the LFD fiscal model resulted in
numbers that were very close to the governor's actual plan
(within several million dollars). The numbers were not
exactly the same because LFD's model used a couple of
slightly different assumptions, mostly on school debt
reimbursement. The results showed relatively small deficits
beyond FY 26 when the [oil and gas] tax credits were
eliminated. The difference was a little more substantial in
FY 24 and FY 25 at around $200 million or so. He remarked
that the numbers led to a relatively balanced budget. He
noted that LFD considered anything within $100 million or
so to be roughly balanced, given the large margin of error
in fiscal planning. He did not have comment on the
governor's 10-year plan as a policy document. He pointed
out that the math worked. The difference between the LFD
baselines and the governor's 10-year plan were policy
choices the administration was making.
Representative LeBon asked about assumptions made about the
impact of inflation in the 10-year plan.
3:01:36 PM
Mr. Painter answered the LFD baseline assumed a 2 percent
inflation, which was used by the state's investment adviser
Callan. He relayed that OMB had stated it did not think
budgets grew with inflation but based on the amount of
incoming revenue. The OMB numbers were 1 to 1.5 percent and
were referred to by OMB as growth rates. He noted there had
been higher inflation in calendar year 2021 than in the LFD
assumption, but it was not yet really seen in the budget.
He detailed there were not many items that would show
inflation right away. He explained that it may be seen as
the result of collective bargaining in the future. For
example, even though there had been 7 percent inflation in
the past year it would not be seen as an impact in the FY
23 budget. He noted it may be seen more in the FY 24
budget.
Co-Chair Foster noted that Representative Josephson had
joined the meeting.
Representative Wool stated the committee talked a lot about
10-year projections for things like oil price and
production. He remarked on the ability to look back to see
how accurate 10-year projections had been. He asked if LFD
looked at expenditure projections from 10 years back to see
about their accuracy for things like education, health and
social services, and corrections. He stated that looking
forward the legislature talked about inflation which was
unknown, aging of the population, and population that had
been trending down recently. He asked if the projections
had been proven to be fairly accurate.
Mr. Painter responded that LFD was not trying to predict
the future. The target was to provide the legislature with
a policy neutral baseline showing what the cost would be in
ten years if current spending was maintained while
factoring in growth with inflation. He clarified that LFD
was not trying to predict what the legislature would do;
the legislature would make many policy choices in reaction
to the needs of the state or available revenue. He believed
OMB in its 10-year plan was trying to convey the governor's
plan. He believed much of the information would be
connected to the accuracy of revenue projections because
OMB had to make the plan balance. He furthered that 10-year
plans made when there was substantial revenue had a lot
more spending than ones made with much less revenue.
3:04:56 PM
Representative Wool understood the need for a predictable
and repeatable policy-neutral formula. He stated that when
committee members viewed the future projections, they
looked at the data like it would happen. He wondered if the
same formulas were applied going back 10 years (i.e., 2
percent growth, a flat budget, and so on) if they would
result in an accurate picture of the present.
Mr. Painter answered that the state did not have much
certainty about revenue six months into the future let
alone 10 years into the future. He stated the value of the
10-year plan was not to predict the future because revenue
would change significantly and would drive many decisions.
He believed the value of a 10-year plan was to look at what
policy choices could be made that would make the future
look better or worse than it did at present and in what
direction the state was trending. He explained there was no
way of projecting details for things like what school debt
reimbursement would be in FY 31. He believed it would be
foolish to try. He stated it was easy to look at the models
and take them too seriously given the underlying volatility
included. He noted that in a way it would make sense to
round the numbers to the nearest billion to avoid false
certainty on the accuracy of the data. He stated there was
not good accuracy beyond the next year or so and even then,
the amounts could swing by hundreds of millions of dollars.
3:07:15 PM
Mr. Painter turned to slide 24 and discussed federal COVID-
19 and infrastructure funds. In the 2021 legislative
session, the legislature appropriated about $1.5 billion of
non-discretionary federal COVID-related funds and $758.2
million of discretionary COVID funds. The discretionary
sources were the Coronavirus State and Local Fiscal
Recovery Funds (CSLFRF) and several transportation-related
fund sources.
Mr. Painter discussed federal COVID-19 and infrastructure
funds on slide 24:
• In the 2021 legislative session, the legislature
appropriated about $1.5 billion of non-discretionary
federal COVID-related funds and $758.2 million of
discretionary COVID funds
o The discretionary sources were the Coronavirus
State and Local Federal Relief Fund (CSLFRF) and
several transportation-related fund sources
• This left approximately half ($504.8 million) of the
CSLFRF for FY23/24, plus the $111.8 million Capital
Projects Fund, which must be appropriated by September
of this year
Mr. Painter elaborated that there were $111.8 million in
Capital Projects Fund monies remaining from ARPA because
the state had been awaiting federal guidance. There was
also a small amount of Department of Transportation and
Public Facilities funds available (in the tens of
millions). He stated there was still quite a bit of the
COVID funding remaining.
Representative Edgmon referenced the remaining $111.8
million. He highlighted that when the legislature finished
the previous session the use of the funds was broadband,
water, and sewer. He asked for verification the use of the
funds had been broadened since that time.
Mr. Painter answered there had not been guidance the
previous year. There had been a statute that made it clear
broadband would qualify, but very unclear what else would
qualify. He stated the word from the federal government had
been the funding would likely mostly apply to broadband.
The guidance included some allowable uses outside of
broadband. He skipped to slide 26 and continued to address
the question. Eligible uses included broadband and other
projects enabling remote work, education, and health
monitoring. He elaborated that the guidance provided more
detail about what the items may look like including a
community center or community school that allowed people to
do all of the aforementioned things.
Mr. Painter relayed that the governor had tried to find
projects that fit all three categories and had named three
projects thus far in the budget, which left approximately
$48 million for something else. He highlighted that none of
the projects were broadband. The first project was $30
million for the Healthcare Record System improvements for
DHSS. He relayed that based on the project description, it
appeared to qualify as enabling remote work, education, and
health monitoring. The second project was $20 million for
Student Information Technology Systems at the University of
Alaska, replacing a 30-year-old system. He stated the
project appeared to qualify because it included training
for work and health monitoring. The third project was $13.8
million for the Eagle River Fire Crew facility. He relayed
the project did not quite fit within the information the
state had received thus far. He elaborated that the
administration had described how it was changing the
project to fit within the guidelines. He noted that LFD was
awaiting more information to see how it may fit within the
guidance.
3:11:12 PM
Representative LeBon referenced the Eagle River Fire Crew
facility and asked if it was viewed as a statewide response
to forest fires versus a local house on fire.
Mr. Painter replied affirmatively. The project would
replace various facilities in the Mat-Su area as a place to
keep equipment and gear and hold firefighter trainings. He
believed the idea of getting the project to qualify would
be adding some type of community center aspect to the
facility. The guidance specified that a whole project could
qualify as long as part of the facility engaged in the
eligible uses specified. He stated it was possible the
project would fit the community center idea, but LFD had
not yet seen the information.
3:12:21 PM
Mr. Painter moved to slide 25 and discussed the federal
CSLFRF funding. He relayed that while the state was allowed
to use the funding through December 31, 2024, the governor
was proposing to spend the remaining balance in the FY
22/23 budgets. He reviewed the funding highlights shown on
slide 25:
• $375.4 million for revenue replacement (filling the
FY23 deficit)
• $72.0 million for capital projects, including:
o $25.0 million mariculture incentive program
o $25.0 million food security agriculture grants
• $22.8 million for three University of Alaska research
projects (drones, heavy oil, and critical minerals)
• $20.0 million for COVID-19 response in fast-track
• $10.0 million for workforce training
Mr. Painter elaborated that the CSLFRF funding could be
broadly divided into $375 million for revenue replacement
and around $130 million in additional spending.
Representative Edgmon thought it was an important point and
germane to the budget conversation. He remarked on the
governor's policy call to spend the funds in one year. He
observed that the funding uses all appeared to be very
legitimate needs. He remarked on the governor's decision to
use the funds as revenue replacement, meaning the funding
could be offset with state money elsewhere. He considered
the governor's policy decision in comparison with spending
the funds over a period of four years. He appreciated the
distinction [made on slide 25].
Vice-Chair Ortiz referenced the $375.4 million in revenue
replacement. He noted there had been discussion the
previous day about whether the money could be used for a
more robust capital budget and increasing deferred
maintenance costs. He asked if it was a legal use of the
funds.
Mr. Painter answered there were restrictions on the funding
uses. He believed some of the deferred maintenance projects
may qualify. He clarified it would be much easier to use
$100 million in revenue replacement for something that
qualified and spend $100 million UGF on deferred
maintenance. He explained the method would avoid any
possibility the federal government would say something did
not qualify. He highlighted that part of the flexibility of
the funds was that they could turned into general funds
through revenue replacement. He encouraged people to not
think too much about what qualified because any of the
[CSLFRF] funds could be made general funds to fund a given
project. He recommended thinking more about identifying the
needs of the state and going from there.
3:15:42 PM
Representative Edgmon considered all of the federal funding
"going out on the street." He noted the state had not yet
received much of the infrastructure and broadband funding.
He thought about the corresponding workforce and the number
of people the state had to do the work and considered a
more measured approach over a period of years. He wanted to
keep an eye on the situation.
Mr. Painter concluded on slide 27 with the federal COVID-19
and IIJA funds. He relayed that the state had not yet
received formal federal guidance or grant awards. He noted
the governor had not built the funding into his budget
other than partial funding for AMHS. There were currently
many more unknowns than knowns. He reported that the bill
increased existing federal grant programs such as the
surface transportation program and for village safe water
and sewer. Additionally, the bill added funding for new
programs. He reported the general timeframe was federal FY
22 through federal FY 26. He noted there was a difference
between federal and state fiscal years and the state could
roughly spend the funds over the next five years.
Mr. Painter shared that LFD estimated the state may need
about $36 million in additional matching funds to receive
the federal funding; however, it was unknown. For example,
the state did not know how much it would receive for the
village safe water and sewer program; the estimates varied
substantially, and the program required matching funds. The
governor had announced the administration's plan to use
some of the surface transportation funds for the Tustumena
replacement. He highlighted that the legislature had
appropriated funding for the ferry in FY 18, including the
matching amount. He explained that by using the existing
match, it would offset match that would be needed for FY
23. He clarified that the actual match needed may be
substantially lower. He estimated it could be $14 million,
but if the Department of Environmental Conservation amount
was less it could be even lower.
Mr. Painter explained AMHS was the one area the governor
used IIJA funds in the budget. The use was to offset $64
million UGF and program receipts from the Marine Highway
Fund in the budget. Additionally, there was an increase in
the weeks of service and reduction in gaps at about $22.6
million. There were also funds available on the capital
side for an electric ferry and other things that were not
yet incorporated in the capital budget. He added that LFD
was awaiting federal guidance for many of the things.
Representative Josephson stated there had been a hope and
belief it would be an enormous capital year for the
legislature. He referenced at the governor's $150 million
capital budget and general obligation bond package. He was
hearing from Mr. Painter that it was more of an "FY 24
thing." He asked if the governor could drop hundreds of
millions in qualifying RPLs [revised program legislative]
after the legislature adjourned the current session,
essentially making the legislature powerless in the
situation.
Mr. Painter answered that the legislature may receive some
of the guidance in the next couple of months before the
legislature adjourned. He noted the capital budget did not
really get started until March or April and there may be
more certainty by then. He confirmed the governor could use
the RPL process for many of the items. He noted that in the
FY 22 budget, the legislature had included language
restricting the use of the RPL process. He explained that
the legislature had specifically exempted the use of the
federal funds from the RPL process the previous year.
Representative Josephson asked for verification that
including the language in the budget acted as a statute to
trump the codified RPL language.
Mr. Painter answered that the RPL language in the budget
was an appropriation for amounts conditional on cooperation
with the Legislative Budget and Audit Committee process. He
explained that the legislature could create exemptions to
the appropriation language "and then we're not
appropriating it." For example, the legislature could
specify "you can do it in line with the RPL statute, except
in this case you can't do an RPL at all because we're not
making that appropriation here in this section." He
furthered that the previous year the legislature had taken
a "belt and suspenders" approach where language had also
limited the RPL process in the disaster bill HB 76.
3:22:01 PM
Representative Josephson considered the COVID money and the
hundreds of millions of dollars in RPLs that had been a
health and safety matter. He did not want to "slow roll"
the capital budget, but he noted it was less of a health
and safety matter.
Representative Edgmon referenced the governor's capital
budget that included a general obligation bond amount
between $302 million and $329 million. He noted he had seen
a couple of different figures. He asked how to juxtapose it
relative to the substantial federal funding of $3.5 billion
over a period of several years. He noted a large chunk of
the funding was coming to Alaska in the current year. He
asked how to understand whether there was federal funding
available that the state may pass in the general obligation
bond, which would result in the state paying debt on a
project. He asked how the legislature would know the state
matching portion of some of the RPLs. He thought the answer
was that the money the governor would purport to RPL would
not have any attached matching funds.
Mr. Painter replied that RPLs were for items that did not
typically have a matching requirement because without the
match it would mean the money could not be spent;
therefore, it would not be an RPL the committee would
necessarily want to approve. Occasionally there had been
special circumstances where the legislature appropriated
matching funds later on. He relayed that one of the
questions LFD always asked about RPLs with federal money
was whether there was a matching requirement, and if so,
how it would be met. Sometimes agencies communicated there
was a matching requirement they could meet with existing
authority. He noted that it would likely not be the case in
a situation involving hundreds of millions of dollars.
3:24:50 PM
Representative Edgmon surmised that the legislature did not
know whether the Tustumena, an ocean going ferry, would be
built in Alaska or another state.
Mr. Painter answered that he did not know.
Vice-Chair Ortiz referenced Mr. Painter's earlier statement
that the legislature had appropriated state matching funds
for the Tustumena in 2018. He understood there was federal
money in place for the purpose as well. He asked if the
money was still available.
Mr. Painter replied that the capital lapse provision
required the work to be started within five years. He
stated it had not yet been five years; therefore,
substantial work could be started using the existing
appropriation. He clarified it had been an appropriation of
state match from the vessel replacement fund and the
federal authority as well. He further explained the project
had been waiting for federal revenue because the additional
project that cost more federal money had been added and it
had been more federal money than the state received that
year.
Mr. Painter thanked the committee and relayed he would
present on the 10-year plan again the following week.
Co-Chair Foster reviewed the schedule for the following
meeting.
ADJOURNMENT
3:27:23 PM
The meeting was adjourned at 3:27 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| LFD Overview HFIN Presentation 1-21-22.pdf |
HFIN 1/21/2022 1:30:00 PM |
LFD Budget Overview |
| LFD Responses to Q FY 23 OP Budget Overview HFIN 1-21-22.pdf |
HFIN 1/21/2022 1:30:00 PM |