Legislature(2021 - 2022)
01/18/2022 11:30 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Overview: Governor's 10-year Plan | |
| 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
January 18, 2022
11:29 a.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Adam Wool
Representative Andy Josephson
Representative Calvin Schrage
Representative Andi Story
Representative Mike Prax
Representative David Eastman
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERVIEW: GOVERNOR'S 10-YEAR PLAN
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
NEIL STEININGER, Director
Office of Management and Budget
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"10-Year Plan Overview."
ALEXEI PAINTER, Director
Legislative Finance Division
Division of Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Comparison of Governor's 10-Year Plan to LFD Baseline."
ACTION NARRATIVE
11:29:35 AM
CHAIR IVY SPOHNHOLZ called the House Special Committee on Ways
and Means meeting to order at 11:29 a.m. Representatives Story,
Schrage, Prax, and Spohnholz were present at the call to order.
Representatives Eastman, Wool, and Josephson arrived as the
meeting was in progress.
^OVERVIEW: Governor's 10-Year Plan
OVERVIEW: Governor's 10-Year Plan
11:30:15 AM
CHAIR SPOHNHOLZ announced that the only order of business would
be presentations on the governor's 10-year plan.
11:31:22 AM
NEIL STEININGER, Director, Office of Management and Budget,
Office of the Governor, provided a PowerPoint presentation,
titled "10 Year Plan Overview" [hard copy included in the
committee packet].
11:32:16 AM
The committee took a brief at-ease at 11:32 a.m.
11:32:21 AM
MR. STEININGER stated that the 10-year plan submitted by the
governor details sources of revenue and the uses of funds. This
includes budgets and projected balances of savings accounts. He
stated that these savings accounts are used to balance the
budget for the general fund, as funds must balance during the
[administration's] term while providing for essential state
services and economic stability. He stated that assumptions in
the plan are clearly articulated so policy makers can understand
the projections put forth by the administration. He pointed out
the 10-year fiscal outlook detailed on slide 3, which shows that
deficits would be converted into surpluses, rebuilding the
savings balance. The capital budget would be held flat
providing the baseline capital needed for the continuation of
existing programs. He stated that these numbers do not reflect
the influx of funds from the infrastructure bill, as this amount
was uncertain at the time of the release of the budget. In
response to Representative Story's question, he indicated that
the higher education funds were included in "swept" balances.
The capital budget for the fiscal year 2023 (FY 23) is a
baseline budget which achieves a match for federal programs. He
stated that some of the non-match recurring programs, as
deferred maintenance, would fall under the general fund
appropriations in the capital budget through the Alaska Capital
Income Fund.
11:43:07 AM
MR. STEININGER moved on to slide 4, which details the sources of
revenue for the state. He stated that assumptions made in the
10-year plan are based on work completed by the Department of
Revenue (DOR) in its Fall 2021 Revenue Sources Book. The
percentage of market value (POMV) is adjusted by half, and, per
the 50/50 dividend plan, half would go toward permanent fund
dividends (PFDs). He stated that revenue adjustments would
include the carryforward, or the balance of unspent, multiyear
appropriations from FY 22. Undesignated savings are direct
appropriations from the statutory budget reserve made by the
legislature in FY 22. He continued that because of the American
Rescue Plan Act (AARPA), federal COVID-19 funds were proposed
for revenue replacement; however, this does not reflect the $1
billion available from AARPA. He stated that a considerable
portion of these funds were directly appropriated to programs
which met the non-revenue replacement rules of AARPA. In the FY
23 budget the AARPA funds would be used to backfill the
operating budget.
11:46:13 AM
MR. STEININGER pointed out on slide 5 the agency's assumptions
for operating expenditures. He stated that formula programs are
set in law, statute, or regulation. This requires the payouts
to be based on a mathematical formula. He added that there is
less budgetary discretion in these items, and he discussed the
K-12 formula, which has population as its primary factor. He
stated that the growth factor in this formula would allow for a
post pandemic shift back to brick-and-mortar schooling. He
discussed the formula for Medicaid, stating that it would have a
1 percent annual expenditure growth applied to FY 25 and beyond,
which allows for provider rate increases and a slightly growing
population. He said that a third of Alaska's population is
enrolled in Medicaid, and this "likely" indicates a "high water
mark." He said that a 1.5 percent annual expenditure growth was
applied to the agency non-formula. He added that the Consumer
Price Index is not a factor which drives these decisions.
11:52:16 AM
MR. STEININGER responded to a question from Representative
Eastman about the "other formula" which contains at least a
dozen or more formula programs throughout the Department of
Health and Social Services. These include the Office of
Childrens Services, the Division of Public Assistance, and other
Department of Education and Early Development budget items which
are not part of the K-12 formula. He stated that a list of
these items would be provided to the committee. In response to
Representative Wool's concern about the "meager" reflection of
inflation in the K-12 budget, he explained that because of the
shifts between correspondence learning and brick-and-mortar
schools, the projection was based on the makeup of the formula
in the coming years. He said there was a 1.5 percent buffer,
which does not change the K-12 formula, and the administration
has not proposed any changes to the K-12 formula in relation to
the base student allocation. He continued that forward
projections only take into consideration current information and
must consider whether there would be a constrained revenue
environment.
12:16:14 PM
MR. STEININGER stated that slide 6 goes into statewide
expenditures, which are non-agency operating budget items. He
remarked that DOR has provided the debt projections. He said
that $22.8 million of general obligation bond debt for FY 24 was
added, as well as the municipal school bond debt reimbursement.
The school bond debt was added at a 50 percent statutory level
for FY 24 and beyond, which assumes the continuation of a
moratorium on new debt. He said that other mechanisms may be
used to fund projects for future facilities in school districts.
He remarked that the administration's policy does not reflect
reimbursing local debt for municipal school improvement
projects. He continued that the state retirement payments
include the actuarial projection for the Public Employees'
Retirement System and the Teachers' Retirement System. This
assumes that contributions would remain flat at $4.6 million.
He continued that oil and gas tax credits were based on the
projection by DOR using the statutory calculation, and the
liability will be fully addressed in FY 26. He pointed out the
fixed annual deposit of $5 million in the disaster relief fund,
which could fluctuate year to year, depending on future
disasters. He stated that zero has been assumed beginning in FY
24 for other fund capitalizations and transfers.
12:25:30 PM
MR. STEININGER, moving to slide 7, discussed capital
expenditures. He said general fund capital expenditures were
held flat beginning in FY 24, and supplementals were assumed to
net with lapsed funds in out years. He stated that significant
investments in baseline funding for fire suppression and
prevention would reduce projected supplemental needs. He
explained that unanticipated supplementals tended to come from
fire suppression in the past, and increasing baseline funding
for fire suppression would help alleviate the need for large
dollar supplementals over time.
12:28:02 PM
MR. STEININGER discussed the Constitutional Budget Reserve (CBR)
balance. He said CBR includes a beginning balance from FY 22,
and this reflects an estimated $490.4 million from swept sub
funds. He added that this would be adjusted once the final
financial reports are available. Based on [past] earnings, he
stated that assumed earnings will have a 2.25 percent rate of
return. He added that the deposits were based on the Fall 2021
Revenue Sources Book projections. He stated that the surplus
draws came from a calculation of expenditures and revenue.
Designated savings were swept into an unrestricted savings
account from which the 10-year fiscal plan proposes to draw
about $700 million over the next few years.
12:31:52 PM
MR. STEININGER mentioned that the 10-year plan is not a
reflection of every policy decision which must be made over the
next 10 years; rather, it is what the governor has proposed for
fiscal reform. He added that constitutional reforms, which
address Alaska's fiscal shape, have been proposed in several
pieces of legislation. He stated that future budget topics
would include reshaping the Alaska Marine Highway System,
addressing Medicaid cost containment, and the post-sweep
transitioning of designated funds. He concluded that general
work on government efficiencies is ongoing to ensure
unsustainable deficits are avoided.
12:35:12 PM
ALEXEI PAINTER, Director, Legislative Finance Division, Division
of Legislative Affairs Agency, provided a PowerPoint
presentation, titled "Comparison of Governor's 10-Year Plan to
LFD Baseline" [hard copy included in the committee packet]. He
stated that the division's fiscal model has been designed to
show policy makers the long-term impact of fiscal policy
decisions. The baseline was created using the assumption that
the current budget levels would be maintained with inflation
adjustments. Policy changes would then be applied against this
baseline. The division's baseline assumptions were from the
DOR's Fall 2021 Revenue Sources Book, and Callan's markets
assumptions were used for the PFD. Spending assumptions for
agency operations assumed that the governor's FY 23 budget would
grow with inflation at a rate of 2 percent. For statewide
items, the baseline has assumed that all items would be funded
to their statutory levels for FY 23 and beyond. These items
include school bond debt reimbursement, the regional educational
attendance area (REAA) fund, the Community Assistance Program,
and the oil and gas tax credits. He stated that the assumption
for the capital budget was 2 percent growth with inflation, and
$50 million per year was assumed for supplementals, which was
based on the average amount of supplemental appropriations minus
lapsing funds each year.
12:38:57 PM
MR. PAINTER referenced the graph on slide 5 and said that the
division's modeling baseline has a deficit of about $1.5 billion
this year and, if using the statutory PFD, about a billion per
year over the next few years. He said the statutory PFD for
this year would be $4,200 per person, and this would create
large deficits, requiring an overdraft of the earnings reserve
account (ERA). Moving to slide 6, he advised that the
governor's 10-year plan involves several policy changes, which
include changing the PFD amount to 50 percent of POMV, and
school debt reimbursement would be funded at 50 percent
beginning in FY 24, with the REAA fund cap reduced to a flat
$17.5 million. He highlighted the differences between the
division's baseline and the governor's 10-year plan, as seen on
slide 7 through slide 12. He pointed out the only substantive
difference is the division's assumption that new debt would be
added to the school bond debt reimbursement, once the moratorium
expires. Pointing out the differences, he said the governor's
10-year plan would include fund transfers with statewide items,
while the division would separate them. Also, he said that the
division would have a slightly different CBR starting balance
because of estimates on pre-audit actuals.
12:43:52 PM
MR. PAINTER stated that in FY 24 the governor's 10-year plan
would be about $200 million below the division's baseline, and
by FY 2031 it would be about $400 million below the baseline.
He pointed out that growth slower than inflation is the most
"powerful policy change" the governor is proposing. Directing
attention to slide 10, he said the darker colors represent the
baseline, while lighter colors represent the governor's 10-year
plan of statewide items, such as debt service, retirement, and
fund caps. He said there is a $40 million to $70 million per
year difference between the division's baseline and the 10-year
plan. On slide 11, Mr. Painter pointed out that with the 50/50
PFD plan, there would be significant deficits totaling between
$300 million to $500 million.
CHAIR SPOHNHOLZ noted that the difference between a statutory
dividend and the adjusted base assumptions results in a massive
difference in the ERA balance. She observed that, given the PFD
is the largest source of income and most stable, the governor's
plan would reduce ERA by half.
12:52:59 PM
MR. PAINTER concluded by noting that the division has recognized
that future fiscal planning is unusual in other states. He
expressed his appreciation for the work the committee was doing.
12:54:22 PM
CHAIR SPOHNHOLZ thanked Mr. Painter and provided closing
remarks.
12:54:56 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
12:55 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Legislative Finance Presentation 1-18-22.pdf |
HW&M 1/18/2022 11:30:00 AM |
|
| FY2023 10-Year Plan 12.15.21.pdf |
HW&M 1/18/2022 11:30:00 AM |
|
| OMB 10-Year Plan Overview 1.18.21.pdf |
HW&M 1/18/2022 11:30:00 AM |
|
| 22.01.18 OMB 10-Year Plan Overview HWAM_corrected.pdf |
HW&M 1/18/2022 11:30:00 AM |