Legislature(2007 - 2008)
02/07/2007 03:42 PM House W&M
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| Presentation by the Office of Management & Budget | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
February 7, 2007
3:42 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Chair
Representative Anna Fairclough, Vice Chair
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
MEMBERS ABSENT
Representative Sharon Cissna
COMMITTEE CALENDAR
PRESENTATION BY THE OFFICE OF MANAGEMENT & BUDGET
PREVIOUS COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
JOHN BOUCHER, Senior Economist
Office of Management & Budget (OMB)
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Presented an overview of state revenue and
budget projections.
DAVID TEAL, Legislative Fiscal Analyst
Legislative Finance Division
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Explained certain revenue terms.
ACTION NARRATIVE
CHAIR MIKE HAWKER called the House Special Committee on Ways and
Means to order at 3:42:08 PM. Present at the call to order were
Representatives Hawker, Seaton, Fairclough, Roses, Gruenberg,
and Wilson.
3:43:08 PM
^PRESENTATION BY THE OFFICE OF MANAGEMENT & BUDGET
CHAIR HAWKER announced that the only order of business would be
a presentation by a representative from the Office of Management
& Budget (OMB)
CHAIR HAWKER reminded the committee that a prior presentation by
the Legislative Finance Division showed a potential budget gap
in the very foreseeable future of in excess of $1 billion. He
opined that a proactive approach to the fiscal gap is better
than a reactive one. Chair Hawker asked the OMB to present
possible budget and revenue scenarios which cover at least the
next eight years.
3:49:50 PM
[The committee spent a few moments being introduced to visiting
youth in the audience.]
3:57:40 PM
JOHN BOUCHER, Senior Economist, Office of Management & Budget
(OMB), Office of the Governor, referred to a chart titled, "FY
08 Revenue by Source and Category" which was part of a
PowerPoint presentation provided to the committee. This chart
shows that of the nearly $11 billion in state revenue projected
for fiscal year 2008 (FY 08), 64 percent, or $7 billion, is in
restricted sources, which include: $3 billion of federal funds;
$2.9 billion in investment revenue (mostly permanent fund
income, and $1.1 billion in other restricted funds. The largest
amount of this "other" category is about $448 million in royalty
oil income, he said. Unrestricted revenues make up about 36
percent, or $3.9 billion, of the state's projected FY 08 budget.
REPRESENTATIVE SEATON noted that some permanent fund revenues,
such as those in the earnings reserve account, are not
restricted funds but are available to spend without statutory or
constitutional restriction.
MR. BOUCHER agreed that although spending the permanent fund
earnings referred to by Representative Seaton is not statutorily
restricted, most would agree the State behaves as if there are
spending restrictions placed on those earnings. He agreed with
an observation by Representative Wilson that the principal of
the permanent fund is protected, but the earnings and the
interest are not, although some of the earnings are used for
inflation-proofing the fund's principal.
MR. BOUCHER testified that when individuals state that 86
percent of the state's revenue comes from oil production, it is
important to know that they are expressing the projected
unrestricted oil revenue for that fiscal year as a percentage of
unrestricted revenue - not revenue as a whole. When you
consider state revenue as a whole, oil accounts for somewhere
near 48 percent of all state revenue; this amount decreases to
35 percent if projected federal revenues are included, he said.
MR. BOUCHER agreed with Chair Hawker's clarification that
federal revenues include money that can only be spent on certain
programs, such as Medicaid.
4:04:24 PM
DAVID TEAL, Legislative Fiscal Analyst, Legislative Finance
Division, Alaska State Legislature, referred to the chart
titled, "FY 08 Revenue by Source and Category" to clarify a
prior point. He noted it might be easier to understand the
issue of restricted versus unrestricted funds by categorizing
the unrestricted portion as "unrestricted general fund." The
key is that federal revenue is not part of the general fund,
because it has restrictions on its use. Federal funds are not
general funds, he reminded the committee. Similarly, investment
revenue is mostly permanent fund earnings, and the permanent
fund is not part of the general fund. It is not that there is a
restriction on using permanent fund earnings, said Mr. Teal, it
simply that these funds do not meet the definition of
unrestricted general funds.
MR. BOUCHER referred to the chart titled, "General Fund Revenue
versus Appropriations" and stated that the predictions on this
chart assume the price of oil will be around $45 to $50 per
barrel through 2013, and then will stay between $40-45 per
barrel through 2015. The FY 08 proposed budget is based on a
projected oil price of $51.25 per barrel. Production for FY 08
is forecast to average 782,000 barrels a day, and stay within
about 5 percent of that number until 2015, when production is
predicted to fall off to about 737,000 barrels a day, he said.
4:08:05 PM
REPRESENTATIVE GRUENBERG asked whether the oil production
projections include consideration of the effects of possible
pipeline downtime, accidents, or deterioration of oil production
facilities.
MR. BOUCHER stated that he believes the Department of Revenue
(DOR) has made allowances in its fall 2006 "Revenue Sources
Book" to account for any effects increased oil production
facility maintenance requirements will have on future oil
production and transportation.
MR. BOUCHER pointed out that the chart titled, "ANS Production
Forecast by Category to FY 17" illustrates uncertainty for
projects that are not actually under development at this time.
The certainty that a new oil development will come into
production goes down for projects that are still being evaluated
by the producer, he reminded the committee.
MR. BOUCHER then referred to a pie chart titled, "Components of
'Other' Revenue FY 08," which details the components of the
revenues shown on the chart titled, "FY 08 Revenue by Source and
Category." This pie chart shows that corporate income taxes are
predicted to account for almost three-fourths of the state's
unrestricted general fund, or $345 million, in FY 08.
4:12:33 PM
CHAIR HAWKER asked which of these components of "other" income
could be increased to help make up for less future oil
production revenue.
MR. BOUCHER replied that some of these areas could increase
incrementally, but it would be difficult to get $1 billion more
in state revenue from any of these other categories.
4:14:58 PM
MR. BOUCHER explained the chart titled, "The Revenue 'Gully'
Between Today and a Gasline," shows a possible revenue scenario
that he prepared using data from the DOR's "Interim Findings and
Determination" dated 11/16/2006 and its fall 2006 "Revenue
Sources Book." This scenario, which goes until FY 20, predicts
the effect of a gas pipeline on state revenues using the assumed
price for gas of $5.50 per million British Thermal Unit (BTU)
delivered to the Chicago market. If one assumes revenue from a
gas pipeline is at least 10 years out, this predication shows a
"revenue gully" between today and the completion of a gas
pipeline, he explained. This gully is potentially manageable
with draws from the Constitutional Budget Reserve Fund (CBR), if
the state is able to maintain a flat state spending scenario
until the gas pipeline begins. However, if the gas pipeline
comes on line later, or if spending is higher than planned,
there may be a gap between revenue and spending, warned Mr.
Boucher. This gap could be paid with draws from the CBR, he
said, reminding the committee that some projections predict the
CBR can last until 2020, while other projections predict the CBR
will run out of money earlier than that.
4:19:20 PM
CHAIR HAWKER noted that in view of other revenue projections, it
may be difficult to keep state spending flat.
MR. BOUCHER agreed with Representative Seaton's observation that
the Legislative Finance Division's scenario assumes a higher
operating budget than is assumed by OMB. This difference in
spending projections explains the different budget lines shown
on the chart titled, "Two Spending Scenarios - With Assumed Gas
Revenue."
4:20:55 PM
REPRESENTATIVE WILSON observed that the reality of flat funding
means that certain cost increases are not being met, which
results in actual cuts to services.
MR. BOUCHER agreed that holding to flat spending in the future
would mean a significant change in state spending patterns. He
went on to say that projected permanent fund income is shown on
the chart titled, "Permanent Fund Statutory Net Income versus
General Fund Petroleum Revenue 1976-2017." The income from the
permanent fund may someday exceed revenue from petroleum revenue
sources. If growth from the permanent fund proceeds as
predicted, permanent fund earnings will give the state some
spending options that other states are envious of, said Mr.
Boucher. He reminded the committee that the legislature has
played a large part in funding our various savings accounts.
MR. BOUCHER stated that this administration is taking steps to
examine state spending, a difficult but potentially valuable
task.
4:27:31 PM
REPRESENTATIVE SEATON asked whether the chart titled "Two
Spending Scenarios - With Assumed Gas Revenue," includes
permanent fund appropriations and expenditures.
MR. BOUCHER responded that it does not.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means adjourned at 4:29:54 PM.
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