Legislature(1995 - 1996)

01/25/1995 09:07 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                             MINUTES                                           
                    SENATE FINANCE COMMITTEE                                   
                        January 25, 1995                                       
                            9:07 a.m.                                          
  TAPES                                                                        
                                                                               
  SFC-95, #1, Side 2 (Malfunction)                                             
  SFC-95, #3, Side 1 (000-242)                                                 
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Senator Steve  Frank,  Co-chair,  convened  the  meeting  at                 
  approximately 9:07 a.m.                                                      
                                                                               
  PRESENT                                                                      
                                                                               
  In addition to Co-chair Frank, Co-chair Halford and Senators                 
  Phillips  and Sharp were in  attendance.  Senator Donley and                 
  Senator   Rieger  arrived  soon  after  the  meeting  began.                 
  Senator Zharoff arrived as it was in progress.                               
                                                                               
  ALSO ATTENDING:    Senator Green and  Representative Davies;                 
  Mike Greany, Director, Legislative Finance Division; Kathryn                 
  Daughhetee,                                                                  
  Fred  Fisher,  Susan  Taylor, Virginia  Stonkus,  and  Jetta                 
  Whittaker,  fiscal  analysts, Legislative  Finance Division;                 
  and  aides  to committee  members  and other  member  of the                 
  Legislature.                                                                 
                                                                               
  SUMMARY INFORMATION                                                          
                                                                               
        Presentation by the Legislative Finance Division                       
             FY 95 Spending Plan Update and Overview                           
                 of Significant Changes to Date                                
            Between FY 95 and FY 96 Operating Budgets                          
                                                                               
  (Malfunction on recording on  SFC-95, Tape 1, Side 2.   This                 
  portion  of the  meeting  was reconstructed  from  shorthand                 
  notes.)                                                                      
                                                                               
  MIKE GREANY,  Director, Legislative Finance  Division, began                 
  his  presentation  by  introduction of  the  division fiscal                 
  analysts  who  advised  of  their  responsibility   for  the                 
  following budget areas:                                                      
                                                                               
       Susan Taylor        -    Dept.  of  Health  and  Social                 
  Services                                                                     
                                Dept. of Administration                        
                                                                               
       Kathryn Daughhetee  -    Court  System,  Dept.  of Law,                 
  Dept. of                                                                     
                                Public   Safety,    Dept.   of                 
  Corrections                                                                  
                                                                               
                                                                               
       Jetta Whittaker     -    Dept. of Commerce and Economic                 
                                Development, Dept. of Revenue                  
                                                                               
       Fred Fisher         -    Dept.  of  Transportation  and                 
  Public                                                                       
                                Facilities,  Dept.  of Natural                 
                                Resources,  Dept. of  Military                 
                                and                                            
                                Veterans'   Affairs,   Capital                 
  Budget                                                                       
                                                                               
       Virginia Stonkus    -    Dept. of Fish and  Game, Dept.                 
  of                                                                           
                                Environmental    Conservation,                 
  Operating                                                                    
                                Budget Plan                                    
                                                                               
       Dana LaTour         -    University,      Dept.      of                 
  Education, Dept.                                                             
                                of Labor, Dept. of Community &                 
                                Regional Affairs                               
                                                                               
       Mike Greany         -    Governor and Legislature                       
                                                                               
  (Senator Rieger and Senator Donley arrived at this time.)                    
                                                                               
  Mr. Greany first  directed attention  to a handout  entitled                 
  "FY 95 Legislative Spending Plan."   He explained that items                 
  set forth in the column  entitled "Adjournment Plan" reflect                 
  the legislative  budget, including  vetoes by  the Governor.                 
  Amounts  listing  in  the  right  column,  "January,   1995,                 
  Update,"  are based  on  the most  recent  Dept. of  Revenue                 
  numbers presented by  Chuck Logsdon.   Items  shown in  bold                 
  reflect changes following adjournment.                                       
                                                                               
  Mr. Greany noted  that since oil prices have averaged $16.22                 
  rather than the  projected $14.00,  the anticipated draw  on                 
  the  Constitutional  Budget  Reserve  Fund  (CBRF)  will  be                 
  adjusted from  $350 million  to approximately  $129 million.                 
  That figure will change  over the coming months in  response                 
  to changes in oil prices.                                                    
                                                                               
  Speaking  to  supplemental  funding for  FY  95,  Mr. Greany                 
  pointed to  requests over  the last six  years ranging  from                 
  $37.7 million  (last year)  to a  high of  $145 million  (an                 
  average  of  $83 to  $84 million).    The list  of potential                 
  supplementals  totals  $78 million.    Governor Knowles  has                 
  indicated  need  for at  least  $59 million.    Whatever the                 
  supplemental ultimately  totals, it represents  another draw                 
  on the CBRF.                                                                 
                                                                               
  Co-chair Frank  asked if  moneys from  AHFC, the  investment                 
  loss fund  relating to  Executive Life, and  AIDEA had  been                 
                                                                               
                                                                               
  transferred.   Mr.  Greany  said that  transfers  are  on  a                 
  quarterly schedule.   The first transfer has  been made, and                 
  the second is in progress.                                                   
                                                                               
  In response  to a question  from Senator Rieger,  Mr. Greany                 
  advised  that  the FY  94  draw  on the  CBRF  totalled $1.4                 
  billion.   That  is the  amount that  appears on  the FY  94                 
  financial statement  as a liability  to be  repaid from  the                 
  general fund.   Draws from the  CBRF are loans, not  grants.                 
  There  is  an  existing $1.4  billion  obligation.   Senator                 
  Rieger voiced his understanding that, technically, the  CBRF                 
  has  the  first  call  on  available  moneys.    Mr.  Greany                 
  concurred, advising of  need for analysis  of the issue  and                 
  decision  making  by   both  the   administration  and   the                 
  legislature.  A  reading of  the judge's decision  indicates                 
  that, at some  point, certain accounts  in the general  fund                 
  would  be "subject  to  a sweep"  to  repay the  obligation.                 
  There will  probably be  need for future  legal guidance  in                 
  this area. Mr.  Greany advised that  he and the  legislative                 
  auditor are  reviewing all funds  and accounts and  making a                 
  list of what  would be subject to  the sweep and  what would                 
  not.  As  an example, Mr.  Greany indicated that the  marine                 
  highway stabilization  fund,  which funds  one-half  of  the                 
  operation of the ferry  system, would be included.   For the                 
  former  response  fund which  was  broken into  a prevention                 
  account and a  response account,  it appears the  prevention                 
  side would  be subject  while the response  side would  not.                 
  Determinations such as the foregoing must be made on a case-                 
  by-case basis, and agreements must be achieved.                              
                                                                               
  Senator  Rieger  inquired  concerning   the  status  of  the                 
  permanent  fund  earnings reserve.    Mr. Greany  voiced his                 
  understanding that the earnings reserve would not be subject                 
  to  sweep.    He  acknowledged  a  question  of  consistency                 
  associated  with  that  determination  and advised  that  it                 
  serves as an example of need for clarification.                              
                                                                               
  Directing attention  to page  3 of  the handout,  Mr. Greany                 
  explained that it presents updated numbers for the CBRF.  He                 
  pointed  specifically  to  the $1.3  billion  in  additional                 
  settlements and advised of two additional payments totalling                 
  $700   million,  resulting   from   the  British   Petroleum                 
  settlement.  The division is projecting  an FY 95 balance of                 
  $1.6 billion for  the fund.  That is in addition to the $1.4                 
  billion "IOU" to be paid by the general fund.                                
                                                                               
  Co-chair Frank inquired concerning  interest retained by the                 
  CBRF,  projected for FY  96.   Mr. Greany  acknowledged that                 
  there are interest  earnings and said  he would provide  the                 
  requested numbers.                                                           
                                                                               
  Directing attention to  page 4  of the  handout, Mr.  Greany                 
  noted  fund  balances  for the  Mental  Health  Trust Income                 
  Account, CBRF,  Permanent Fund  Earnings Reserve,  Science &                 
                                                                               
                                                                               
  Technology Endowment Fund, Investment Loss Trust Fund, AETNA                 
  Reserve, Alaska  Housing  Finance  Corporation  (AHFC),  and                 
  Alaska Industrial Development  and Export Authority (AIDEA).                 
                                                                               
                                                                               
  Discussion  followed between  Co-chair Frank and  Mr. Greany                 
  concerning the impact of recent bond market changes on state                 
  revenues.     Further  discussion  followed   regarding  the                 
  financial  difficulties in Orange  County California as well                 
  as interest on  the part  of both Alaska  and California  in                 
  resolution of finances associated with  Executive Life.  Mr.                 
  Greany suggested  that the  Attorney General  and those  who                 
  administer the state  supplemental benefits system  be asked                 
  for  an  update   of  the  situation  associated   with  the                 
  Investment Loss Trust Fund.                                                  
                                                                               
  (The remainder of the minutes  reflect transcription of tape                 
  SFC-95, #3, Side 1)                                                          
                                                                               
  Speaking to the AETNA Reserve, Mr. Greany explained that the                 
  $12.1  million  reflects  excess  health  insurance  benefit                 
  contributions.  Last year,  the legislature appropriated  $8                 
  million from the fund.   Governor Hickel subsequently vetoed                 
  that appropriation.   Senator  Frank asked  if the  Governor                 
  provided an  associated veto  message.   Mr. Greany  advised                 
  that  he would research the question.   Senator Rieger asked                 
  if  the  balance  represents  the  differences  between  the                 
  standard accrual per employee per month and claims paid out.                 
  Mr. Greany  said that he  would consult with  the department                 
  and return an answer to committee.                                           
                                                                               
  Mr. Greany next pointed  to the estimated $335 million  AHFC                 
  reserve  account.    Last  year  the legislature  asked  the                 
  Legislative  Audit   Division  to   review  potential   cash                 
  balances--amounts  in  addition  to  bond obligations.    He                 
  observed that the  state has been sensitive to  "not wanting                 
  to do  or appear to do  anything that could  affect our bond                 
  rating or  how Wall Street  perceives our ability  to manage                 
  our finances."  Legislative Audit  advised that $535 million                 
  could  be available over  the next two to  three years.  The                 
  legislature   appropriated   $200   million   for   FY   95.                 
  Legislative  Audit  is again  reviewing  AHFC to  update the                 
  available balance.   Figures should be available  within the                 
  next few weeks.                                                              
                                                                               
  Speaking to AIDEA, Mr. Greany  characterized the $17 million                 
  balance as a "squishy number."  He said that AIDEA financial                 
  statements  should be read  with caution.   A  $1.50 reserve                 
  must be maintained for every $1.00 loaned by the  authority.                 
  In addition, proposals presently "in the works" could impact                 
  the balance sheet.                                                           
                                                                               
  Mr. Greany next directed attention  to an additional handout                 
  entitled "Formula Funded  Programs."   He explained that  it                 
                                                                               
                                                                               
  attempts to lay out major differences  apparent in the FY 96                 
  "Hickel" budget.  Analysis up to  this time has been limited                 
  to formula programs  since they are  the areas in which  the                 
  largest dollar  amount increases  will appear.   Funding  is                 
  largely driven by statute.  Unless Governor Knowles proposes                 
  underfunding or statutory changes,  numbers set forth on the                 
  handout  will  be  accurate  since  they  reflect  statutory                 
  requirements.   The second page  of the  handout contains  a                 
  more detailed explanation  of differences between FY  95 and                 
  96.                                                                          
                                                                               
  Senator Donley referenced  the $4 million increase  in adult                 
  public assistance and asked if it represents a projection or                 
  actual expenditure.  Mr. Greany responded that it reflects a                 
  projection for FY 96.   Funding for FY 95 and  96 represents                 
  "a moving number based on caseload  estimates.  This program                 
  has traditionally  received supplemental  funding.   Senator                 
  Donley suggested  that warnings  be sent  to the  department                 
  that it should not expect "business as usual."                               
                                                                               
  In  response to a  question from Senator  Rieger, Mr. Greany                 
  advised  of   an  interim   project  which  made   five-year                 
  projections  on  a  program-by-program  basis  for   formula                 
  programs.   Those projections include  caseloads, inflation,                 
  etc.  The  division is  now comparing FY  96 projections  to                 
  budget numbers.                                                              
                                                                               
  Senator  Zharoff  inquired  concerning  the  status  of  the                 
  longevity  bonus  program.   Mr.  Greany advised  of ongoing                 
  litigation to determine whether legislation phasing  out the                 
  bonus  is legal.  Numbers set forth at this time assume that                 
  the phase out will occur.                                                    
                                                                               
  Senator  Sharp  pointed to  the  $50 million  difference for                 
  health, education, and social services between FY 95  and 96                 
  and voiced his  understanding that  the difference would  be                 
  reduced by supplemental  funding.  Mr. Greany concurred.  He                 
  further  advised  that the  supplemental  will also  raise a                 
  question concerning  whether higher FY  95 expenditures will                 
  carry into FY 96 as well.                                                    
                                                                               
  Senator   Rieger  inquired   concerning   the  Alaska   Debt                 
  Retirement  Fund.   Mr.  Greany advised  of a  two-step debt                 
  service process for both general  obligation and school debt                 
  reimbursement.  A  general fund  appropriation is made  into                 
  the  debt retirement  fund.   Subsequent  appropriations are                 
  then made from  that fund  to specific debt  service.   That                 
  allows  the  fund to  accumulate  balances if  total amounts                 
  appropriated for debt  service are not  needed.  Last  year,                 
  the need  for school debt  retirement was $2.5  million less                 
  than anticipated.  The  $2.5 million was then applied  as an                 
  offset   against   the  state's   general   obligation  bond                 
  indebtedness.                                                                
                                                                               
                                                                               
  Senator  Zharoff  inquired  concerning   the  percentage  of                 
  reduction  in  municipal  assistance  and  revenue  sharing.                 
  VIRGINIA  STONKUS,  fiscal   analyst,  Legislative   Finance                 
  Division, responded "less than 4%."                                          
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  There being nothing further to come before committee at this                 
  time, the meeting was adjourned at approximately 9:40 a.m.                   
                                                                               
                                                                               

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