Legislature(2023 - 2024)ADAMS 519
01/27/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Overview: Fy 2024 Fiscal Overview | |
| 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 27, 2023
1:34 p.m.
1:34:31 PM
CALL TO ORDER
Co-Chair Johnson called the House Finance Committee meeting
to order at 1:34 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Neal Foster, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Alyse Galvin
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
Alexei Painter, Director, Legislative Finance Division;
Valerie Rose, Fiscal Analyst, Legislative Finance Division;
Connor Bell, Fiscal Analyst, Legislative Finance Division;
Michael Partlow, Fiscal Analyst, Legislative Finance
Division; Albert Wall, Fiscal Analyst, Legislative Finance
Division.
SUMMARY
OVERVIEW: FY 2024 FISCAL OVERVIEW
1:34:41 PM
Co-Chair Johnson reviewed the meeting agenda.
^OVERVIEW: FY 2024 FISCAL OVERVIEW
1:35:52 PM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
introduced himself and his staff.
VALERIE ROSE, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION,
introduced herself.
CONNOR BELL, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION,
introduced himself.
MICHAEL PARTLOW, FISCAL ANALYST, LEGISLATIVE FINANCE
DIVISION, introduced himself.
ALBERT WALL, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION,
introduced himself.
1:38:11 PM
Mr. Painter introduced a PowerPoint presentation titled,
"Overview of the Governor's FY24 Budget" dated January 27,
2023 (copy on file) and began on slide 2, which briefly
outlined the content of the presentation.
Mr. Painter moved to slide 3 which depicted a graph
recapping FY 23. The Legislative Finance Division (LFD)
tended to look at fiscal sensitivity graphs rather than the
price of oil when evaluating a budget. He explained that
the dotted line on the graph represented the sensitivity of
the price of oil per barrel. When the price of oil changed
by $1, it meant a change of $70 million in revenue for the
state. In FY 23, the price of oil was projected to be $102
per barrel, which would have allowed for K-12 education to
be fully forward funded. The new price forecast projected
oil to be $88.45 per barrel, which left very little for
forward funding. The true fiscal balance point of the FY 23
budget before any transfers occurred was $94 per barrel. If
the price dipped below $87 per barrel, there would be no
forward funding revenue left over. He noted that although
there was a slight buffer with the projected oil price of
$88.45 per barrel, the extra money could easily be absorbed
by supplementals or a relatively small swing in the price
of oil.
Mr. Painter advanced to slide 4 to continue discussing the
FY 23 budget recap. The slide read as follows:
• In FY23, the budget balances at $94 per barrel before
fund transfers this is the true fiscal balancing
point
• The legislature's budget transferred the FY22 surplus
(nearly $1 billion) to the SBR and used that to fill
any FY23 deficit. The Governor vetoed most of that
transfer, leaving about $20 million in the SBR to fill
a deficit
• Additional revenue up to $102 per barrel will go into
the Public Education Fund to forward-fund the K-12
formula
• Supplemental appropriations could change these
balancing points
1:41:42 PM
Co-Chair Edgmon asked whether the supposition in FY 24 was
that there would be a statutory Permanent Fund Dividend
(PFD).
Mr. Painter responded that he was talking about FY 23 at
the moment. However, Representative Edgmon was correct in
that the governor's FY 24 budget was based on a statutory
PFD.
Representative Ortiz asked about the previous graph on
slide 3. He asked for clarification that $88.45 per barrel
was the projected price for FY 23. He knew that the actual
price would be released on June 30 of 2023.
Mr. Painter responded in the affirmative. He explained that
the price came from the Department of Revenue's (DOR)
forecast.
Mr. Painter continued on slide 5 to discuss the 2022
session recap. When the legislature was developing the
budget in 2022, oil prices were spiking, hitting up to $125
per barrel. Unsurprisingly, the result was that there was
higher spending during 2022 session than the 2021 session.
The graph was comparing session to session rather than
fiscal year to fiscal year. The reason for the comparison
was because there were multiple supplements in 2022 that
were included in order to use available revenue. In agency
operations from the 2021 session to the 2022 session,
spending increased by about 7.5 percent; however, the rate
was consistent with inflation and was not as dramatic of an
increase as it might seem. The statewide items increased by
146.6 percent, but much of the increase was due to one-time
costs. The legislature in 2022 included supplemental
appropriations to repay past unfunded amounts for school
bond debt reimbursement through the Regional Educational
Attendance Area (REAA) fund and the Community Assistance
program. The capital budget was nearly $1 billion of
unrestricted general fund (UGF) spending across the 2021
and 2022 sessions for a cumulative 275.8 percent increase.
The total UGF spend in the 2022 budget was 56.5 higher than
the 2021 budget.
Representative Stapp noticed there was a continuous need to
pay past unfunded or underfunded debt obligations. He asked
if there was a list of all of the items the legislature had
yet to pay for in order to get a better idea of the type of
liabilities faced by the state.
Mr. Painter responded that in some of the past years, LFD
had provided a slide that included items that still needed
to be funded, such as the deferred maintenance backlog. The
oil tax credits and other debts had been paid off. He would
be happy to provide an updated list. He noted that many of
the short-funded items were caught up with in the prior
year.
1:46:22 PM
Mr. Painter continued to slide 6 to discuss the fiscal
outlook going forward. The slide read as follows:
• Compared to the Spring 2022 Revenue Forecast, the Fall
2022 Forecast projects $1.1 billion less UGF revenue
in FY23 and $0.7 billion less in FY24
• While the oil price spike in the first half of 2022
contributed to the CBR balance and financed a nearly
$1 billion UGF capital budget in the 2022 session, it
did not change the long-term revenue picture
• Over the medium to long term, the Fall 2022 forecast
is very similar to the Fall 2021 forecast
Mr. Painter continued to slide 7 which included a graph
comparing the Fall 2021 forecast and the Fall 2022
forecast. The graph projected that by around FY 32, the
forecast would be essentially identical to FY 24. The long-
term structural deficit was very similar in 2023 as it was
in 2022. He advanced to slide 8 and spoke about the
volatility of oil prices. The graph on the slide showed oil
prices from January of 2020 through January of 2023. He
indicated that even price changes that appeared relatively
small had a large impact on Alaska's revenue. If the price
of oil swung by $10, which appeared small on the graph,
that equated to $700 million in state revenue. A $300
million deficit in the governor's budget translated to only
a single point in the oil market. He encouraged the
legislature to budget based on a fiscal sensitivity chart
to ensure that the budget would work at a variety of
prices. While DOR created revenue forecasts as accurately
as it could, the price of oil had been extremely volatile
which meant it was likely that there would be substantial
errors in the forecast.
Mr. Painter advanced to slide 9 which depicted the fiscal
sensitivity chart for FY 24. The oil price was forecasted
by DOR to be $81 per barrel, which equated to a fiscal
deficit of $322.5 million. The governor's FY 24 budget
would balance at about $86 per barrel. He advised against
building a budget that would only work at $81 per barrel
due to the high likelihood of inaccuracies in the forecast.
He reiterated his suggestion that the legislature should
craft a budget that would work with a wide variety of oil
prices. He understood that if revenue came in high, the
money would go to the public education fund, but if revenue
came in low, there was plan in place for the backstop in
the statutory budget reserve (SBR).
Representative Ortiz asked about the word "budget." He
asked if the term referred to the total expenditures of the
legislature including the PFD.
Mr. Painter responded yes; the budget would include any
expenditures.
1:51:21 PM
Mr. Painter continued to slide 10 and a graph depicting UGF
revenue from FY 12 through FY 24. He explained that the
graph went back to FY 12 because it was the last year
before FY 22 where there was a budget surplus. The red
section on the graph was non-petroleum revenue outside of
the Earnings Reserve Account (ERA) and the blue was
petroleum revenue. He paused to talk about the
categorization of the revenue types. He noted that the POMV
statutes dictated the calculation and stated that the
entire amount was available for appropriation without any
constitutional statutory restrictions. The statute made the
entire POMV amount UGF revenue, regardless of how it was
spent. Additionally, the PFD statute set up a statutory
expenditure formula. The revenue source was superseded by
the POMV draw because the draw was UGF. He thought the
categorization could be confusing sometimes because LFD
categorized expenditures by the restrictions on the
revenue. The UGF expenditures referred to the "flavor of
the revenue" and there were some items that were governed
by a statutory formula and were constitutionally mandated,
but were paid for using UGF. For example, K-12 funding was
dependent upon a statutory formula. He explained that it
described the revenue that paid for the item.
Mr. Painter explained that the revenue source was a
separate picture, which was why UGF revenue paid for the
PFD. The purple section, referring to the PFD from ERA,
showed the entire revenue used for the dividend and state
government together. He indicated that LFD wanted it to be
clear in the chart that the same elements were being
compared and contrasted. The purple section made it easier
to compare the elements across multiple years. However, in
2018, the POMV draw did not exist and the PFD at the time
was not considered UGF revenue.
Mr. Painter continued to speak about the substance of the
graph. The FY 12 revenue including the draw was over $10
billion. Revenue dropped rapidly from FY 13 to the lowest
point in FY 17 when UGF revenue was about $2 billion. With
the introduction of the POMV draw and the slight recovery
in the price of oil, revenue went back up, but slumped
again during the COVID-19 pandemic. Revenue rose again in
FY 22 and was projected to stay up through FY 24, but with
an eventual downward turn.
1:56:01 PM
Mr. Painter continued to slide 11, which layered the budget
on top of the data on the graph on the previous slide. He
reiterated that there was a budget surplus in FY 12 and
starting in FY 13, there was a budget deficit. As revenue
declined, the budget deficits grew. The state continued to
be in a deficit through FY 21 and had a surplus in FY 22,
breaking the nine-year deficit streak. The FY 23 budget was
projected to have a pre-transfer deficit and the FY 24
budget had a deficit as well. The state would be returning
to being in a budget deficit despite the increase in
revenue.
Co-Chair Edgmon referred to slide 10. He understood that
the draw from the savings account was not added into the
graph because it was not considered revenue. He asked if
the savings draw would be a significant addition to the
graph.
Mr. Painter responded in the affirmative. He added that
from FY 15 to FY 18 there were draws from $2 billion to
$3.6 billion.
Co-Chair Edgmon commented that if he were to draw a graph
that measured political volatility from FY 15 to the
current day, it would mirror the graph on slide 8. He
understood that the political volatility of the past was
something the legislature was trying to avoid when
balancing the budget.
Mr. Painter advanced to slide 12 to speak about the savings
balances from FY 12 to FY 24. The state's savings peaked in
FY 13 at over $16 billion between the combined CBR and SBR.
The savings dropped down to a low of about $1.3 billion in
FY 20. After the surplus in FY 22, there was about $2.3
billion in the constitutional budget reserve (CBR), which
was a significant increase from FY 20 but nowhere near the
totals in FY 13. He was often asked if there was a target
balance for the CBR, and generally the goal was around $500
million for cash flow purposes; however, there was a
different calculation to determine how much money should be
available for a buffer. Some states liked to have a
volatility-based reserves target built in, but Alaska did
not have one. Generally, the more dependent the budget was
on oil prices, the higher the reserve should be because
there was an elevated risk for volatility. If the budget
was based on a more conservative estimate, a smaller
reserve might be reasonable. The $2.3 billion presently in
the CBR could be considered sufficient as a shock absorber,
but $16 billion had not been sufficient in the past to
balance the budget. He was unsure if there could be an
objective reserve target as a shock absorber.
2:01:02 PM
Representative Galvin asked if the balances would look
different if there was not a large transfer into the
corpus.
Mr. Painter responded that in FY 21, the legislature did
not reverse the sweep from the CBR. Normally, LFD did not
count the swept amounts at the end of the year because the
reverse sweep would occur the following day. The FY 20 data
included the impact of the sweep because it was not
reversed in FY 21. If the sweep had not occurred, the CBR
balance would have been $800 million in FY 21. When the
higher education fund was reconstituted as a FY 22
supplemental, it came from the general fund rather than the
CBR.
Co-Chair Edgmon noted that the $3 billion draw went back to
2013. He asked if Mr. Painter could provide more detail.
Mr. Painter responded that $3 billion was transferred from
the CBR to the retirement fund in FY 15. The deficit was
filled in FY 15 using the SBR and ending the forward
funding of education. Additionally, $300 billion was
transferred from the CBR to the Public Employees'
Retirement System (PERS) and the Teachers' Retirement
System (TRS) to reduce the unfunded liability and reduce
the payments. The expenditures would have been about $700
million in FY 15. The refinancing significantly reduced the
amounts that the state had paid into retirement since FY
15.
Mr. Painter continued on slide 13 to discuss LFD's budget
baselines. The slide read as follows:
• 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
FY24 Adjusted Base for agency operations, the FY23
capital budget as the base for FY24. Since all
statewide items were fully funded in FY23, they also
both include full funding of statewide items. The only
difference in FY24 is the PFD. Current policy assumes
a 50/50 PFD plus an energy relief payment. 50/50 PFD
(50% of POMV draw) would be $1.76 billion, paying
about $2,700 per recipient. Adding a $420.1 million
energy relief payment would result in a total
distribution of about $3,350 per recipient.
• Current law assumes a statutory PFD.
o That is projected to be about $2.47 billion,
paying about $3,800 per recipient.
Mr. Painter continued on slide 14 to discuss the changes in
agency operations from FY 23 to the FY 24 baseline. He
relayed that the largest increase was a one-time $57
million surge for education, which was outside the formula
and did not end up coming to fruition. There was also
nearly $30 million for university research that was a
multi-year appropriation and came out of the FY 23 budget.
There were a number of other one-time items detailed on the
slide, such as the salary adjustments to the tune of $31
million. The total change in the adjusted base number was a
$123 million reduction overall. Although it appeared that
the governor's FY 24 budget was lower than the FY 23
budget, it was simply because there were a number of one-
time payments in FY 23. If the one-time payments were taken
into account, the governor's FY 24 budget was actually up
from the baseline and consistent with the growth rate in
the ten-year plan.
Mr. Painter continued to slide 15 and continued to speak
about the statewide items in detail. He explained that
school debt reimbursement, other debt service, state
retirement payments, and so on were fully funded at the
statutory level in the prior year.
2:08:11 PM
Mr. Painter discussed slides 16 and 17 in conjunction with
each other. The PFD was the only difference between the
current policy and current law scenarios for FY 24. With
the statutory PFD, the current law baseline would be a
deficit of about $750 million. In agency operations, the
governor's budget was above the baseline by about $55
million and in line with the administration's expected
growth rate. For statewide items, the governor was $30
million below the baseline which did not include funding
for community assistance. The governor's proposed capital
budget was comparatively much lower. The total amount
appropriated in the capital budget in the prior session was
nearly $1 billion, and the governor's FY 24 budget proposed
$276 million. The proposed FY 24 capital budget was
consistent with historic averages, but less than the
previous years. Altogether, the governor's budget was
$434.5 million below the baseline, which was primarily due
to the reduced capital budget.
Mr. Painter continued to detail the governor's budget on
slide 18 as follows:
• Includes statutory PFD payment in FY24.
• Agency Operations is $54.8 million (1.3%) above LFD
baseline.
• Fully funds statewide items other than Community
Assistance.
• Pre-transfer deficit of $322.5 million is filled with
a combination of ARPA revenue replacement ($10.6
million), drawing from FY23 forward-funding of K-12
($114.1 million), and the SBR ($19.8 million) and CBR
($178.3 million)
• Governor did not submit supplementals on December 15
(they are due on the 15th day of session) but includes
an $85 million placeholder in the OMB fiscal summary.
Note that LFD does not include a similar placeholder,
so FY23 figures in our fiscal summary are pre-
supplementals.
If FY23 forward-funding is used to close the FY24
deficit, any FY23 UGF supplemental appropriation
has the effect of increasing the FY24 deficit.
Mr. Painter elaborated that the $114.1 million remaining
from K-12 forward funding that could be used to fill the FY
24 deficit was pre-supplemental. One effect of using the K-
12 forward funding to close the deficit in FY 23 was that
the FY 24 deficit increased.
2:12:23 PM
Representative Galvin asked if Mr. Painter could provide
some historical context on the forward funding of
education. She wondered how it impacted those in decision
making positions in education and whether it altered the
thinking about credit ratings.
Mr. Painter responded that the state forward funded
education from around FY 09 to FY 15. Only once did the
amount that was distributed to districts match the amount
in the K-12 formula. There were several other years when
the legislature changed the K-12 formula and the amount did
not match, and other years when there was funding that was
outside the formula. In the years that items were forward
funded, the legislature learned the following: firstly, the
legislature could take back the funding if it was
necessary, which it did in FY 10 and FY 15 when there were
unexpected deficits, and secondly, just because a
particular amount was added to the account, districts would
not necessarily receive the exact amount. He would not put
a lot of stock in the forward funded amount from the
standpoint of district decision making. The legislature
tried another method which was a forward appropriation, but
it was deemed unconstitutional. Regarding credit ratings,
he indicated that any amount held in savings would help the
state's credit rating. He was not certain whether creditors
would view forward funding as better or worse than a budget
reserve.
Representative Galvin thought there would be some
assumptions that given the state constitution, there would
be expected expenditures for education. She thought that
knowing that there was money in the bank would be
appropriate.
Mr. Painter responded that because there was so little left
over in the current year, he would have to consult with
LFD's debt manager in order to provide more detail. He
would follow up with the information.
2:16:31 PM
Mr. Painter continued on slide 19 with a fiscal summary of
the governor's budget. He expected revenue to decrease by
about $304 million from FY 23 to FY 24, agency operations
to decrease by about $70 million, and statewide items to
decrease by $666.8 million. Much of the reductions
reflected the removal of one-time items, such as energy
relief amounts, in addition to oil and gas tax credits. The
FY 24 budget was down by $1.2 billion overall but the
dividend was up. In total, the FY 24 budget was $404
million down from where it was a year prior, and the pre-
transfer deficit had gone from $422.5 million to $322.5
million. The deficit was filled using federal dollars such
as American Rescue Plan Act (ARPA) in FY 23. In FY 24, the
deficit was filled with ARPA revenue replacement funding
and the remainder came from the state's savings, which
would drain the SBR.
Mr. Painter continued to slide 20. The slide read as
follows:
• UGF Agency Operations are $54.8 million (1.3%) above
LFD baseline:
o ($20.9) million UGF (net zero all funds) by
utilizing Higher Education Fund for scholarship
programs and WWAMI $20.7 million UGF increase to
Medicaid formula
square4 $18.1 million for utilization and inflation
changes, $2.6 million to expand postpartum
coverage. 12/29 federal FMAP phase-out will
change this number at GovAmend.
o No K-12 funding outside the formula, but funds to
statutory level including $30 BSA increase
authorized in 2022 session (HB 114)
square4 $6.4 million UGF in other increases from HB
114 fiscal notes
Mr. Painter continued that the higher education fund had
been drained by the CBR sweep in FY 22, but the legislature
passed a bill in 2022 that ensured that it would no longer
be swept. To offset the impact of the CBR sweep, the
governor included in the FY 23 budget about $34 million in
fund changes from designated general funds to UGF. The
action made the budget appear smaller but did not actually
impact the size of the budget or the general fund because
it was a net zero.
Representative Ortiz asked about there being no K-12
funding outside the formula. He asked how much less would
be going to education under the proposed FY 24 budget from
FY 23.
Mr. Painter responded that it was a $30 base student
allocation (BSA) increase, which corresponded to about $8
million or $9 million. The projected state cost associated
with the K-12 formula was relatively flat despite the
increase. There was an increase to the required local
contribution as a result of increased local property
values, which equaled the cost out from the state's
standpoint. The decrease in the state's payments to
districts was about $57 million. The districts would see
about $500 million less from year to year because the BSA
increase was counteracted by the loss of one-time funding.
2:22:20 PM
Representative Hannan understood that the $30 increase to
the BSA was due to the Reads Act. She wondered if there was
a $30 increase to every BSA in the formula whether or not
people had been added under the Reads Act or implemented
the new primary grades reading requirements.
Mr. Painter responded that there were a few different types
of monies in the Reads Act. The $30 increase to the BSA was
implemented across the board. Additionally, there was $3
million for the required $30 million increase in the Pre-K
program. Lastly, there was $3.4 million for a combination
of money to districts and to the Department of Education
and Early Development (DEED) for the implementation of the
Reads Act itself. He explained that the BSA change was not
tied to Reads Act money.
Representative Hannan asked if the $3 million for Pre-K and
the $3.4 million for district enhancement was competitive
or if there was a formula to determine how the money was
distributed.
Mr. Painter responded he would follow up with the
information.
Mr. Painter continued on slide 20:
o $7.5 million increases to institutions in
Corrections, but $7.5 million decrease in
projected health care costs
o $6.2 million for DOH for tuberculosis and
congenital syphilis elimination plans
Mr. Painter added that the state had been lapsing money
from supplementals for years and increasing the money
allocated to institutions. He relayed that there were not
many major changes in the budget. It was a relatively
status quo budget, though there were some smaller issues
that would be discussed in subcommittees.
2:25:29 PM
Co-Chair Edgmon recalled that there was an increase of
around $27 million for additional costs in 2022. He thought
the governor had vetoed the increase. He asked if Mr.
Painter remembered the numbers and if he could provide more
details.
Mr. Painter responded that the legislature appropriated up
to $27 million depending on the price of oil for the "fuel
trigger." He explained that the fuel trigger would
distribute money to state agencies to offset high fuel
costs and the amount of distribution would go up or down
depending on the price of oil; however, it was vetoed by
the governor. Many agency budgets in FY 24 included
increments related to materials costs, which might include
fuel costs. For example, the Department of Transportation
and Public Facilities (DOT) had a number of one-time
increments for commodities costs, which included fuel
costs. He thought the cost might be met in FY 24, but
through one-time increments rather than distributions.
Co-Chair Edgmon explained that he wanted to raise the issue
because in rural Alaska, fuel costs had doubled or tripled
and purchasing power had eroded considerably.
Mr. Painter continued on slide 21 and relayed that the
statewide items in the governor's FY 24 budget totaled
$359.0 million. School debt reimbursement, REAA fund
capitalization, and state assistance to retirement were all
funded at statutory levels. There had been discussion in
recent years about how to pay for the healthcare aspects of
retirement, and he explained that the healthcare side was
funded in excess of 100 percent. The Alaska Retirement
Management Board (ARMB) had said within the last two years
that it would zero out additional state funding on the
healthcare side because it did not need the extra funds. In
2022, the legislature took the money that would have gone
to the healthcare side and tried to appropriate it to the
pension side, but it was vetoed by the governor. The
governor's FY 24 budget showed the money that would have
gone to healthcare as savings to the state. He added that
the decision to fund the healthcare side was a yearly
decision by ARMB and the governor's ten-year plan assumed
that it would continue to be unfunded.
2:29:35 PM
Representative Stapp asked what the exact existing
liability was on the pension side or retirement side.
Mr. Painter responded it was roughly $7 billion but he
would have to get back to the committee with the exact
number.
Mr. Painter continued on slide 21. He indicated that the
governor did not appropriate any funds to the Community
Assistance Fund. The fund had a target balance of $90
million and on July 1 of FY 24, one-third of the balance
would be distributed to local governments. There would be a
$60 million balance remaining for a distribution in FY 25
of $20 million. The base payments to municipalities totaled
to about $25 million, meaning that the leftover $20 million
would be enough to pay the base payments, but not enough to
pay the per capita payments. The impact of the lower
distribution in FY 25 would be felt by the larger
communities in the state. One of the possible fund sources
for community assistance was the Power Cost Equalization
(PCE) fund which was based on prior year earnings. In FY
22, the fund lost money and there were no additional
earnings available; however, if the legislature wanted to
appropriate to the PCE fund from the general fund, it
could.
Mr. Painter continued on slide 22 to discuss the capital
budget. There was $125.8 million in UGF for a federal match
for DOT alone, which was more than the entire UGF capital
budget a few years previously. He explained that the
Infrastructure Investment and Jobs Act (IIJA) had resulted
in there being more federal funds available for
appropriation. The governor's budget included about $175
million to match federal funds, and in order to capitalize
upon federal funds, the capital budget would need to be
larger to accommodate for matching dollars.
Mr. Painter reported that the governor did not have any FY
24 requests for the Alaska Marine Highway System (AMHS)
apart from maintenance. The first year of funding through
IIJA had been approved, which primarily covered items that
had already been appropriated, but did cover some items
that had not been appropriated. Presently, the governor's
budget did not include the second year of the five-year
IIJA funding, and there would likely be budget amendments
in response. Presently, there was a 20 percent match rate
for the federal AMHS funds if the funds were used for
capital. If the full $150 million was utilized that was not
eligible for the operating budget, it would require adding
about $30 million to match it. Some of the monies could be
made up of existing appropriations and although the timing
was still unclear, the governor's amended budget would
likely help determine more details. He suggested not
focusing too much on what was currently included in the
governor's budget because it was a placeholder and was
likely to change.
2:35:03 PM
Representative Hannan asked for more information about the
$10 million in statehood defense. She asked if the previous
year's allocation for statehood defense was included in the
base budget for the Department of Law (DOL). She was
uncertain if the $10 million represented an additional
request.
Mr. Painter responded that statehood defense had been
funded in the past with two separate multi-year language
appropriations in the base. In the first year, $4 million
was funded and around $2.5 million in the second year. Both
instances were multi-year appropriations that were still
included in the books through FY 25. A status update was
forthcoming on the previous appropriations, but it was not
currently in DOL's base. The new request was a capital
request, but he was unsure if he would agree that it was a
capital project. The request was going to the governor's
office rather than DOL, which was different than how it had
been handled in previous years.
Mr. Painter advanced to slide 23 to discuss the long-term
outlook and the governor's ten-year plan. He read from the
slide as follows:
• LFD modeling baseline grows the current (FY23)
budget with inflation and all statewide items are
funded to statutory levels (this includes the PFD)
• With these baseline assumptions, deficits increase
from about $900 million in FY24 to $2.3 billion in
FY32, draining the CBR in FY26
• The Governor's 10-Year Plan makes several policy
changes relative to the baseline that reduce the
deficit, but still shows deficits each year that would
drain the CBR in FY27 absent new revenue
• The Governor includes new revenue targets increasing
from $300 million in FY24 to $900 million in FY27+,
with no specified source
Mr. Painter prefaced that the modeling of the governor's
ten-year plan he would be introducing on the next slide
were slightly different than the way LFD saw the baseline.
Primarily, LFD would say that the modeling in the ten-year
plan had a number of policy changes relative to the
baseline and were technically sound. He thought it was
important to emphasize that the differences in the modeling
were not wrong, but it was a policy choice and LFD agreed
with the governor on the majority of the technical
elements.
Mr. Painter advanced to slide 24 to discuss the LFD
baseline model. The slide showed that there were projected
deficits each year from FY 23 to FY 32 growing from about
$9 million in FY 24 to about $23 million in FY 32. The line
at the top of the graph on the slide represented the budget
including the PFD. The graph on the right side showed the
budget reserves. With the deficits, the CBR would run out
quickly in FY 26, resulting in unplanned draws. The bottom
of the side showed what the effective POMV draw rate by
fiscal year would need to be in order to result in an ERA
draw of over 7 percent.
2:41:53 PM
Representative Stapp noted that ten years ago, the state
had $16 billion in the SBR and CBR and $10 billion in
revenue. The state had rapidly depleted its savings account
in the last ten years. He was concerned with the deficits
projected on the slide. He asked what the absolute worst
case scenario would be in terms of an average oil price
that would require the state to break the POMV limit sooner
rather than later.
Mr. Painter responded that daily prices had gone to zero
and DOR's sensitivities had been reduced to $20 per barrel.
Due to the POMV draw, it was difficult to dip down below a
certain amount. If prices crashed, the state could easily
run through the $2.3 billion in FY 24 alone. There were a
couple of versions of the models: the straight-line and
more simplistic version, and the Monte Carlo simulation
version that could be run based on the expected volatility
to see the likelihood of various outcomes. He thought the
models were helpful to view what would realistically be the
best case and the worst case scenario. He would be happy to
follow up with the committee with more modeling.
Representative Stapp thought it appeared that in FY 32, the
legislature would no longer have the ability to appropriate
the revenues to meet relatively any funding formula that
was statutorily obligated. He asked if his understanding
was correct.
Mr. Painter responded that it was not quite correct because
even if there was no balance in the ERA, the POMV draw
would continue to realize some gains. He hoped that the
legislature would not draw the ERA down to zero, but in the
unlikely case that it happened there would still be some
revenue available for the budget.
2:45:46 PM
Mr. Painter continued on slide 25:
• Policy changes in Governor's 10-Year Plan:
Agency operations grow at 1.5% in FY25+
PERS and TRS health care contributions are not
funded (as they were not in FY23/24)
Does not fund Community Assistance with UGF
Capital budget decreases to $276.5 million in
FY24, $220.0 million in FY25, and then grows by
1.5% per year
• Assumption Differences in LFD Model:
Governor assumes supplementals and lapse cancel
out, LFD includes $50.0 million placeholder
LFD includes a placeholder for new school debt
after the moratorium ends in 2025, Governor does
not
Mr. Painter continued that LFD assumed that districts would
continue having school debt at roughly the rate that was in
place prior to the moratorium.
Representative Galvin understood and agency operations grew
at 1.5 percent and inflation was predicted at 2.5 percent.
She wondered if the goal was to shrink agency operations in
the ten-year plan.
Mr. Painter responded the 2.5 percent estimate came from
Callan, the state's investment advisor. The governor's ten-
year plan operated under the idea that state budgets
typically did not grow based on inflation. The governor
could choose to grow spending slower than inflation. There
was a nearly 20-year period from the late 1980s through the
early 2000s during which the budget grew substantially
slower than inflation because of a policy choice.
Representative Galvin thought that the state had lived the
scenario through education and the choice to flat-fund
education. She assumed there were contracts in place that
might be beyond 1.5 percent. She wondered how realistic it
was to grow the budget at a slower rate than inflation.
2:51:02 PM
Representative Ortiz asked about the dollar amounts of the
PERS and TRS healthcare contributions and how much money
would be saved in the budget. He wondered if unfunded
liability related to healthcare at all or if it only
related to retirement benefits.
Mr. Painter responded he did not remember the dollar
amounts for FY 24 but would get back to the committee with
the information. It was paid for in two different places,
which was why he would have to calculate the amounts and
get back to the committee. The entire unfunded liability
was currently only on the pension side because the
healthcare side was overfunded.
Representative Ortiz understood that was why the state
could "not afford" to make a contribution because it was
already overfunded. He asked if he was correct.
Mr. Painter responded in the affirmative.
Mr. Painter continued on slide 26, which compared the
baseline to the ten-year plan. In year one, the main
difference between the two was the capital budget, which
was proposed by the governor to be much smaller than in
2022. Over time, the difference between the 1.5 percent and
2.5 percent growth rates compounded and made for a widening
gap. By FY 32, the impact of growing one percent slower
than inflation was substantial due to the compounding
effect. The governor's plan would be $1.26 billion lower
than the baseline by FY 32.
Mr. Painter moved to slide 27 which modeled the governor's
ten-year plan with no new revenue. In FY 27, the CBR would
be depleted and additional draws from the ERA would be
needed. There were still substantial deficits and the
governor recognized that it was not sustainable.
Mr. Painter advanced to slide 28 which modeled the
governor's ten-year plan with new revenue of $300 million
to $900 million per year. He relayed that LFD's modeling
showed that it would result in a balanced budget. There
were still slight deficits due the modeling differences
between LFD and the governor. The CBR remained around $2
billion going forward in both models. He indicated that LFD
would agree with the governor's analysis that if the state
spent according to the governor's plan, $900 million in new
revenue was the right target.
2:55:55 PM
Representative Ortiz referred to slide 28 and the new
revenue scenario. He understood that the budget balanced
out without increasing the BSA other than the 1.5 percent
growth of inflation. He asked if his understanding was
correct.
Mr. Painter responded that it could be a larger increase
but it would come at the expense of decreases elsewhere.
Co-Chair Johnson reviewed the following meeting's agenda.
ADJOURNMENT
2:56:44 PM
The meeting was adjourned at 2:57 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| FY24 Overview HFIN 1-27-23.pdf |
HFIN 1/27/2023 1:30:00 PM |
HB 39 LFD Overview HFIN |
| LFD FY 24 Overview HFIN Response from 1-27-23 Meeting.pdf |
HFIN 1/27/2023 1:30:00 PM |
HB 39 |