Legislature(2015 - 2016)SENATE FINANCE 532
01/23/2015 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Presentation: Overview Fy16 Operating and Capital Budgets | |
| Start | |
| Presentation: Overview Fy16 Operating and Capital Budgets | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
January 23, 2015
9:09 a.m.
9:09:31 AM
CALL TO ORDER
Co-Chair Kelly called the Senate Finance Committee meeting
to order at 9:09 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Pat Pitney, Director, Office of Management and Budget
SUMMARY
PRESENTATION: OVERVIEW FY16 OPERATING AND CAPITAL BUDGETS
PRESENTATION: FALL 2014 FORECAST
[Note: The presentation was postponed until January
26, 2015. See January 26, 2015 minutes for detail.]
^PRESENTATION: OVERVIEW FY16 OPERATING AND CAPITAL BUDGETS
9:10:50 AM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
(OMB), presented "FY2016 Budget Overview" (copy on file).
She noted that considering the gubernatorial transition and
the precipitous drop in the price of oil, the state was
facing a different budget situation. She clarified that
Governor Walker submitted former Governor Parnell's work in
progress (WIP) budget to satisfy the December 15th
deadline, and the overview represented the governor's
endorsed budget which would come through as amendments. She
added that putting Alaska and Alaskans first was paramount,
and asserted that in the current tough budget climate OMB
was prioritizing economic stability. She referred to slide
3, "Budget Priorities," and highlighted OMB priorities
including education, resource development (a priority to
get to additional revenues in the future), affordable
energy, and supporting Alaskan families.
9:12:48 AM
Ms. Pitney referenced slide 4, "Budget Guidance: Limit
Spending," and related that OMB asked departments to view
the budget situation as a multi-year issue while first
looking at current spending. She noted that every
commissioner had considered how to constrain spending as
much as possible, and that OMB also asked what departments
could do if their budget was reduced by five to eight
percent in addition to what the WIP budget had predicted.
She explained that within this scenario, OMB asked
departments to focus on administrative structures in order
to maximize continued service delivery. Additionally, OMB
asked the departments to consider where they could partner,
and whether they could privatize. The departments
contemplated those scenarios and then OMB analyzed their
responses.
Ms. Pitney went on to relate that OMB had also asked the
departments to forecast the outcome of a 25 percent
reduction over a four-year period. She related that OMB had
asked departments to consider which programs were required
by law, which were not; and to focus on the latter. She
noted that over the current and subsequent legislative
sessions OMB had looked at recent statutes, their
associated costs, and whether any of them could be
considered for savings. She summarized the concept of
short-term constrained spending combined with structurally
moving to reduce spending in the future. She added that OMB
wanted to keep Alaskans involved and keep the process as
open as possible.
9:15:22 AM
Ms. Pitney discussed slide 5, "FY 2016 Budget by All Fund
Sources," and noted that the endorsed budget was $13
billion, remarkably almost the same amount as the prior
year. She noted that the consistency in amounts was a good
sign and helped to stabilize the economy. The slide
identified the following fund sources: Federal Funds, 28
percent ($3.7 billion); Permanent Fund, 18 percent ($2.3
billion); Unrestricted General Fund, 25 percent ($3.3
billion - reserves); Unrestricted General Fund, 17 percent
($2.2 billion - FY 16); and Designated General Fund, 7
percent ($875 million). She added that the state's
dependence on the reserves was significant, and that at
$3.3 billion, they were down from the projected $3.5
billion. She noted the Unrestricted General Funds had
decreased.
Ms. Pitney reviewed slide 6, "FY2016 Budget by All Fund
Sources," to demonstrate how federal funds and the
Permanent Fund are expended, and how the state attracts
federal funds. She related that funding categories for
federal funds included the Department of Transportation and
Public Facilities ($1.1 billion); Medicaid ($1.4 billion);
and all other Federal Funds to include the University of
Alaska (University), K-12 education, and the Department of
Environmental Conservation. She explained that of the $2.3
billion in the Permanent Fund, $1.4 billion went out to
citizens as a dividend and almost $1 billion went to
inflation proofing.
9:17:39 AM
Senator Dunleavy queried as to whether the committee would
have access to the 5 and 8 percent reduction reports from
the departments. Ms. Pitney replied that the committee
would have access to the departments' recommendations, and
that the reduction reports were considered internal working
documents for deliberative purposes only. Senator Dunleavy
asked if they would see the raw data from the departmental
recommendations. Ms. Pitney further explained the scenarios
of developing recommendations based on budgetary targets
provided by the governor. She clarified that if
commissioners were asked to consider budget cuts or growth,
they would provide contingency figures for each. Senator
Dunleavy contended that the subcommittee process would
shortly begin and they would soon begin considering those
details. Ms. Pitney maintained that OMB had committed to
the commissioners that the documents would be for
deliberative purposes, and it wanted to protect that
agreement.
9:19:33 AM
Ms. Pitney referred to slide 7, "FY 2016 Budget by Category
All Funds," which illustrated the distribution by fund
source based on the entire budget. She listed the
categories as follows: Agency Nonformula, $4.3 billion
(includes Legislature & Judiciary [Alaska Court System]);
Capital Budget, $1.4 billion; Permanent Fund, $2.3 billion;
Statewide Appropriations, $1.3 billion; Other Formula
(primarily health), $2.5 billion; and K-12 Formula, $1.3
billion.
9:20:01 AM
Ms. Pitney discussed slide 8, "FY2016 Budget by Category
All Funds." The pie chart included categories that were
state funded (shown in solid colors) and categories that
were externally funded by the investment of state funds
(shown in patterned colors). She went on to list categories
of Unrestricted General Funds as follows: almost 40 percent
in Formula funds; almost 40 percent in Agency Nonformula
budgets; 20 percent in Statewide Appropriations; and 3
percent in the current year's capital budget. She noted
that the current capital budget was quite small.
9:21:36 AM
Co-Chair MacKinnon asked if there would be anything in the
slides that would quantify one-time funding reductions
versus funding that would last over a period of multiple
budgets. She noted that the current oil price forecast for
the subsequent two years projected approximately $50 to $60
per barrel. She commented that with a current budget built
on the assumption of oil priced at $100 per barrel, the
committee was looking for long-term savings. She continued
that making cuts sooner to items extending over the budget
period would help Alaskans better to "recalibrate." She
noted that she was trying to determine how much one-time
funding was proposed by the governor to eliminate as far as
the transfer of general fund to federal dollars. She noted
that it appeared as if Medicaid and the switch of the $450
million was why overall state spending appeared whole. She
noted that she could quantify the reductions within the
capital budget but not within the operating budget.
Ms. Pitney responded that there was no slide to reference
the amount of one-time funding cuts. She continued that the
reductions in the agency operating budgets were expected as
base reductions rather than a one-time reduction that would
be funded at a later date.
Co-Chair Kelly pointed out that the committee would need
the reductions quantified; specifically if education was
included, as it was identified by the governor as one-time
funding in the amount of $91 million.
Ms. Pitney responded that the funds were not reflected in
the budget. She explained that because the education
funding was appropriated entirely in 2015, it would be
reflected as a $52 million dollar reduction in the 2015
supplemental budget, and was not reflected in the numbers
displayed in the presentation. She added that $40 million
of the aforementioned $91 million was used in 2015, and
only reduced the 2016 and 2017 one-time funding. She
concluded that what was reflected were base reductions.
9:24:47 AM
Co-Chair MacKinnon clarified her request for a dollar
amount and associated percentage of the budget cuts to
agency operating budgets or otherwise. Ms. Pitney specified
that there was a summary sheet included in the printed
materials provided to the committee; it quantified the
amounts in question and she would review it at the end of
the presentation.
Co-Chair MacKinnon noted that both Ms. Pitney and Governor
Walker (in his State of the Budget speech the previous
evening) mentioned privatization. She asserted that
privatization could alternately save or cost money, and
wondered how OMB would strategize and evaluate costs when
considering privatization in reference to management fees,
specifically those that were an expense to the Permanent
Fund. She added that those are huge numbers to the people
of Alaska, and stated that she did not need the numbers on
that day. Ms. Pitney acknowledged her request.
Senator Dunleavy followed up and asked if there was any
department, division, or function that the governor would
not consider for privatization. Ms. Pitney responded that
there was nothing off the table, and furthered that the
current fiscal situation demanded that the state look
differently at the way it did business. She noted that they
would be looking at short and long-term savings as
criteria.
Senator Dunleavy inquired if the governor would seriously
consider a state function for privatization if it was
demonstrated that the function could be done more cost
effectively without impacting quality. Ms. Pitney responded
in the affirmative.
Co-Chair Kelly noted that the committee should not ask
over-arching policy questions that would undoubtedly be
further discussed by the governor's cabinet. He asserted
that he did not want to put Ms. Pitney in a difficult
position and that the committee primarily needed the
numbers at that time.
Ms. Pitney referred to slide 11, "FY2016 UGF Spend: $5.55
Billion," which reflected a bit about the financial trend.
She drew attention to the significant difference in General
Fund spending from FY 13 to FY 16 as well as the
highlighted $3 billion payment to the Public Employees
Retirement System (PERS) and the Teachers Retirement System
(TRS) in FY 15. She noted that the payment resulted in a
lower annual payment into the PERS and TRS accounts, and
would be a positive force in stabilizing the cost of PERS
and TRS in the future. She stated that the PERS and TRS
portion of the WIP budget would be a pension obligation
bond, and rather than having a $5 million debt service
there would be a $260 million payment.
Ms. Pitney moved to slide 12, "UGF/CBR/SBR spending by
category FY2013-FY2016," and noted that the non-formula and
formula agency budgets were the most stable. She pointed
out that the capital, retirement systems, tax credits, and
other statewide budgets were more volatile; adding that
they were "fairly stable," although growing.
Ms. Pitney referred to slide 13, "All Agencies
contributing," which illustrated the percentage of
reductions for agency non-formula funds. She commented that
Judiciary had almost no change from the previous year. She
pointed out that the governor's budget was reduced by 30
percent, due to 2016 not being an election year, whereas
2015 was higher than normal because of the election year.
She referred to an 11 percent reduction mentioned by the
governor and attributed it to a reduction in his executive
office. She explained that the Department of Labor and
Workforce Development and the Department of Commerce,
Community and Economic Development were the two areas that
had grown the quickest in the previous few years.
Ms. Pitney continued to explain slide 13, and noted
criteria that was used included how much entities had
increased over the past; how much they had been reduced in
recent years; as well as what would be a priority need for
service in the future. She pointed out reductions in the
Department of Natural Resources, Department of Public
Safety, and Department of Health and Social Services, and
highlighted a $16 million reduction to the University
budget the previous year. She commented that the University
was sizing into the previous reduction while they were
taking the additional reduction in the current budget
proposal. She went on to state that this particular budget
eliminated the fuel trigger mechanism. She noted that in
the case of current oil prices it made sense.
9:31:20 AM
Senator Hoffman wondered if the committee could get a
departmental breakdown of what the reductions entailed. Ms.
Pitney responded that OMB would be prepared to provide that
information. She noted that the departments were given
reduction targets to consider one week previously, and
would be working through the reduction scenarios. She added
that because the departments had completed 5 and 8 percent
reduction scenarios, they had already made some progress.
She noted that as the reductions became specific they would
come across as amendments.
Ms. Pitney went over slide 14, "FY2016 Capital Budget" and
explained that it was a high level summary. She reminded
the committee that the capital budget was stripped down in
order to meet the December 15th deadline.
Ms. Pitney related that a few projects were added back for
a total of $150 million. She added that the total also
included appropriations for two projects: the Mt. Spurr
Geothermal project (the primary offset for the energy and
weatherization programs); and $22 million of the $25
million for the aerospace project. She explained that the
maintenance was scaled down significantly from prior years;
although the total still included some for Department of
Administration, University, Department of Transportation
and Public Facilities, and a small amount for a year of
construction for the University of Alaska Fairbanks
engineering building.
Ms. Pitney referred to the "Arctic Policy" component of
slide 14 and opined that arctic policy was an important
opportunity for Alaska. She stated that starting in 2015,
the United States was serving its two-year chairmanship of
the Arctic Council. Alaska was the only arctic state, she
continued, and the state had only two years to ensure that
its arctic agenda was at the top of the United States
agenda during the chairmanship. She mentioned that the
budget component added to what the Commission on Arctic
Policy should do, and surmised that Alaska's Arctic Policy
Advisor Craig Fleener had likely worked on policy
prioritization.
Vice-Chair Micciche wondered if the presentation was
available electronically. Ms. Pitney responded in the
affirmative.
9:34:44 AM
Ms. Pitney presented slides 15 to 20, noting that the
slides represented three revenue scenarios with graphs
depicting the price of oil returning to $100, $85, and $50
respectively. She pointed out that state spending for 2016
was reflected significantly higher; this included the $3.3
million gap she referred to in an earlier slide. She
related that under the $100 oil price scenario, the state
budget reserves would last until FY 22 and the reserves
came down significantly each year. She noted that even
optimistically, the gas line could start in 2023, so there
could be a very small bridge if oil prices go to the
forecast. She stated that under the $85 oil price scenario
the budget reserves would last until FY 18.
Senator Hoffman asked what the assumed agency reduction
scenario was under the revenue forecasts being presented.
Ms. Pitney responded that the projection was built on the
FY 16 flat budget, but the committee would see a 25 percent
budget reduction in agency operating budgets. She noted
that with that reduction, the projected $1.9 billion
reserve for FY 18 (illustrated in slide 18) would move to
about $2.2 billion. Senator Hoffman requested similar
reserves projections with the reductions up to 25 percent
as forecasted by the governor. Ms. Pitney acknowledged the
request.
9:37:59 AM
Ms. Pitney referred to slide 20, "Reserves Projection at
$50 oil," and explained that under the scenario the state's
reserves would total $2 billion at the end of FY 17, which
would not be sufficient to get the state through FY 18
without additional revenue.
Co-Chair MacKinnon asked if Ms. Pitney would clarify when
FY 18 would occur in a calendar year. Ms. Pitney stated
that FY 18 would begin in July of 2017. Co-Chair MacKinnon
noted that the date was less than 1,000 days away.
Vice-Chair Micciche noted that he appreciated the
projections being presented in the slides, and the fact
that OMB would be focused on a more realistic range of oil
prices. He added that he would like to see a final
projection with oil at the $40 range for realistic
consideration, and that it would be a very different
outlook than the current projection based on $50. He
stressed the importance of considering what the state would
be faced with in case of such low prices. Ms. Pitney opined
that it was very possible oil would be priced at $40 a
barrel and stay there. She commented that an important
question was 'what should Alaska's budget be?' She pointed
out that Alaska was the only state that managed its budget
on the price and production of oil.
Ms. Pitney referred to slide 21, "What's in an Alaska
budget?" which outlined some supported items in the budget,
including:
· 128,100 K-12 students
· 507 schools in 53 school districts
· 33,000 University students
· 150,000 - Medicaid beneficiaries
· 23 public health clinics
· 2,360 children in foster care
· 456 Pioneer Home residents in 6 facilities
· Grants to more than 900 nonprofits
· 5,600 miles of roads and highways
· 805 bridges
· 2,427 state buildings and facilities
· 254 state airports and 2 international airports
· 35 ferry terminals an 11 ferries
· 25 state harbors
· 12,400 offenders in custody or supervised
· 13 correctional institutions
· 43,300 retirees from public service
· 40,000+ full-time state, university and K-12
employees
· 640,500 Alaskans receiving a PFD
· 3.3 million acres in 123 state park units
· Manage ownership of 160 million acres of State
land
· 132,032 Court cases annually
· Response to 2,028 spills of 285,000 gals. of oil
and hazardous materials
Ms. Pitney pointed out that Alaska had the largest airport
system in the world, as well as the largest marine highway
system. She remarked that the important question was not
what the state could afford with oil at $40 a barrel, but
rather what was the right size for Alaska's government. She
noted that OMB took two approaches to analyzing the
question - elucidated in slides 22 through 23.
9:42:35 AM
Ms. Pitney cited slide 22, "Average Total State
Expenditures," and acknowledged the slide's complexity. She
described the points on the graph as depicting spending for
each state based on population. She pointed out that the
line represented the per-population average, and that
Alaska was above the line, indicating greater spending per
capita. She concluded that if Alaska was on the line (not
taking into account cost/salary/heat differentials) the
trajectory would predict that the state's budget would be
$5.3 billion. She added that the current submitted budget
was $5.5 billion. She furthered that if the "big four"
states (California, Florida, Texas, and New York) were
removed from the equation, the state expenditure average
would predict a $4.8 billion budget for Alaska. She
summarized that the two predictions represented boundaries
of a sort; they illustrated what other states spend for
their state government.
9:44:35 AM
Senator Dunleavy made note of the 150,000 Medicaid
beneficiaries on slide 21, and wondered how many more
Alaskans would receive benefits under Medicaid expansion.
Ms. Pitney responded that some reports showed 40,000 while
other predictions showed as little as 16,000. Co-Chair
Kelly remarked that based on new information, he considered
the range of new beneficiaries to have been 16,000 or
below.
Ms. Pitney referred to slide 23, "Inflation and Population
Adjustment Approach," which illustrated a projection graph
based on FY 98 agency operations and adjusted by inflation
and population. She noted that when Co-Chair Kelly was a
member of the Senate in 1998, there had been 15 years of
flat budgets in the State of Alaska, resulting in what he
described as a "pent up demand." She characterized it as a
"low point" and commented that it was a very lean budget.
She presented scenarios under which the 1998 budget was
adjusted for inflation ($3.2 billion), and then for
inflation plus population growth ($4 billion), to view what
that would yield for the current time as compared to the
governor's proposed budget ($4.2 billion). She described
the approach as another boundary that could be considered
when looking at state spending. She reiterated that the
totals were still significantly more than what $40 or $50 a
barrel oil would predict.
9:47:27 AM
Senator Bishop made a reference to the aforementioned "pent
up demand" that was the result of several years of lean
budgets. He referred to the deferred maintenance of 2,400
state buildings, and inquired as to whether they should be
made a part of the current budget. He opined that deferred
maintenance was a bad practice. Ms. Pitney noted that the
graph they were viewing was only a representation of the
operating budget and the deferred maintenance was not
reflected.
9:48:53 AM
Co-Chair Kelly asked for clarification on the combined
capital and operating budget totals in FY 98. Ms. Pitney
explained that the capital budget was small (a maximum of
$100 million) through the 1990s and it was difficult to
discern on the graph. She added that the $2.2 billion total
at the time included the capital budget.
Ms. Pitney explained slide 24, "UGF Revenue Scenarios and
FY16 Spend by category" and noted that it was for
demonstrating perspective. She pointed out that agency
operations for nonformula funding would eclipse revenue
brought in at $40 a barrel. She additionally pointed out
the graph bars for FY 16 agency operations, FY 16
Unrestricted General Fund endorsed budget, as well as a bar
to denote if the state was 25 percent below the FY 15
funding level for agency operating budgets. She commented
that the capital budget was very small, and the tax credit
and retirement payments were not discretionary. She
surmised that even at $100 a barrel oil, spending did not
quite match the 25 percent reduced rate.
Vice-Chair Micciche pondered that it would be challenging
to get state spending on par with smaller-population
states. He referred to slide 22, and noted that Alaska was
an outlier on the graph. He alleged that it would be
illustrative for the Alaskan people to see colored data
points to illustrate which states on the graph had income,
sales, or state taxes. He added that achieving the state's
budgetary goals would be difficult unless it became
aggressive and Alaskans identified what services they
demanded as opposed to what they had become accustomed to.
Ms. Pitney stated that she could add the requested colors
on the graph.
Ms. Pitney referred back to slide 24, and reiterated that
based on current oil production priced at $100 a barrel and
considering a budget reduced by 25 percent, still left a
gap in funding. She remarked that the gap was small with
revenues based on $100 a barrel, and the state could get to
2022 and then rely on gas revenues. She qualified that
below the $100 per barrel price, the state would need to do
some "bridging" to make up for the deficit of funds. She
added that there was a summary of the agency budgets and
budget targets as well as a capital project summary
attached to the presentation (copy on file).
9:54:19 AM
Co-Chair MacKinnon wondered if there had been any re-
appropriations for mega-projects (such as Mt. Spurr and
aerospace) and invested federal funds. Ms. Pitney replied
that there were no other appropriations for mega-projects,
pending the evaluation.
Co-Chair Kelly noted that one of the problems in the
Legislature was that during session the members were forced
into the role of manager rather than board of directors;
this did not work well with the current budget scenario
that included serious reductions. He applauded the governor
for what he had done so far with the budget, and remarked
that more reductions would be necessary. He continued that
he had confidence in Ms. Pitney, expressed appreciation for
the governor's budget, and stressed that it was the
administration's responsibility to manage the budget. He
added that the graphs presented did not solve the fiscal
problem, and urged continued budget increases.
Senator Olson wondered when the governor would be releasing
his new endorsed budget.
Ms. Pitney responded that from a technical standpoint, the
budget before the members was the level of budget they
would see, and that the transaction detail would come in
shortly after the first of the current month.
9:57:42 AM
RECESSED UNTIL 9:00 A.M. JANUARY 26, 2015
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012315 DOR Rev. Forecast Presentation.pdf |
SFIN 1/23/2015 9:00:00 AM |
Budget |
| 012315 OMB Budget Overview for SFC.pdf |
SFIN 1/23/2015 9:00:00 AM |
Budget |