Legislature(2021 - 2022)SENATE FINANCE 532

03/03/2022 01:00 PM Senate FINANCE

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Audio Topic
01:04:42 PM Start
01:05:45 PM Executive Order 121 - Divide Department of Health and Social Services into Department of Health and Department of Family and Community Services
02:24:41 PM Presentation: Competitiveness of Alaska's Oil & Gas Regime [continuation]
03:05:46 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Executive Order 121 - Divide DHSS into TELECONFERENCED
Department of Health and Department of Family &
Community Services
Heard & Held
-- Public Testimony <Time Limit 2 Minutes> --
-- Invited Testimony: --
-Adam Crum, Commissioner, DHSS
-Sylvan Robb, Assistant Commissioner, DHSS
-Stacie Kraly, Director, Civil Division, LAW
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                       March 3, 2022                                                                                            
                         1:04 p.m.                                                                                              
                                                                                                                                
1:04:42 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Bishop called the  Senate Finance Committee meeting                                                                    
to order at 1:04 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Click Bishop, Co-Chair                                                                                                  
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Natasha von Imhof                                                                                                       
Senator Bill Wielechowski                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Senator David Wilson                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Adam  Crum, Commissioner,  Department of  Health and  Social                                                                    
Services;   Stacie   Kraly,    Director,   Civil   Division,                                                                    
Department  of  Law;  Sylvan Robb,  Assistant  Commissioner,                                                                    
Department  of  Health  and  Social  Services;  Mike  Cline,                                                                    
Director, Corporate  Strategy, Gaffney Cline;  Nick Fulford,                                                                    
Director, Gas and Energy Transition, Gaffney Cline.                                                                             
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Joshua Morgan,  self, Fairbanks; Joey Tillson,  ASEA Member,                                                                    
Ketchikan;   Robin   O'Donoghue,  Alaska   Public   Interest                                                                    
Research Group, Anchorage; Andree McLeod, Self, Anchorage.                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
EXECUTIVE  ORDER  121  - DIVIDE  DEPARTMENT  OF  HEALTH  AND                                                                    
SOCIAL SERVICES INTO DEPARTMENT  OF HEALTH AND DEPARTMENT OF                                                                    
FAMILY AND COMMUNITY SERVICES                                                                                                   
                                                                                                                                
PRESENTATION:  COMPETITIVENESS  OF   ALASKA'S  OIL  AND  GAS                                                                    
REGIME [continuation]                                                                                                           
                                                                                                                                
^EXECUTIVE  ORDER  121 -  DIVIDE  DEPARTMENT  OF HEALTH  AND                                                                  
SOCIAL SERVICES INTO DEPARTMENT  OF HEALTH AND DEPARTMENT OF                                                                  
FAMILY AND COMMUNITY SERVICES                                                                                                 
                                                                                                                                
1:05:45 PM                                                                                                                    
                                                                                                                                
Co-Chair Bishop  relayed that  it was  the first  hearing Of                                                                    
Executive Order  121 (EO  121). He relayed  that it  was the                                                                    
intent  of the  committee  to hear  from  the Department  of                                                                    
Health and Social Services (DHSS)  and the Department of Law                                                                    
(DOL). He  referenced the names  of those who  would present                                                                    
invited testimony.                                                                                                              
                                                                                                                                
1:06:36 PM                                                                                                                    
                                                                                                                                
ADAM  CRUM, COMMISSIONER,  DEPARTMENT OF  HEALTH AND  SOCIAL                                                                    
SERVICES, introduced  himself. He  relayed that  in addition                                                                    
to  a   presentation,  the  member's  packets   contained  a                                                                    
Sectional Summary,  support letters,  stakeholder engagement                                                                    
list,  and metrics  and measures  to evaluate  the potential                                                                    
success  of  the split  (copy  on  file). Additionally,  the                                                                    
packets  contained the  DOLs  response  to  the Division  of                                                                    
Legal and  Research Services  memo dated  February 14, 2022,                                                                    
and other supporting materials (copy on file).                                                                                  
                                                                                                                                
Commissioner  Crum  believed   the  conversations  in  other                                                                    
legislative  committees had  helped  clarify that  splitting                                                                    
DHSS  was  good  for  the department  and  stakeholders.  He                                                                    
asserted   that   splitting    the   department   was   best                                                                    
accomplished  by an  executive  order, and  EO 121  complied                                                                    
with   authorities   granted   to  the   governor   in   the                                                                    
constitution.                                                                                                                   
                                                                                                                                
Commissioner Crum addressed  a presentation entitled "Alaska                                                                    
Department of  Health and Social Services  - Executive Order                                                                    
121 - DHSS  Reorganization" (copy on file).  He showed slide                                                                    
2, Serving Alaskans in all stages of life.                                                                                      
                                                                                                                                
1:07:53 PM                                                                                                                    
                                                                                                                                
Commissioner Crum showed slide 3, "DHSS today":                                                                                 
                                                                                                                                
     DHSS Today                                                                                                                 
     ? FY2022 Management Plan Budget: $3,441,891.3*                                                                             
     ? Positions (PFT): 3,259                                                                                                   
     ? Programs/Services                                                                                                        
          o Over 100 programs that serve Alaskans directly                                                                    
     ? Major Categories of Services                                                                                             
          o Regulatory/Claims Processing/Eligibility for                                                                      
             Services                                                                                                           
          o Public Health Services                                                                                            
          o Protecting    Vulnerable   Alaskans,   Children,                                                                  
             Families (Service/Provider/Provider Based)                                                                         
                                                                                                                                
     * Does not include COVID funds                                                                                             
                                                                                                                                
Commissioner Crum  explained that federal  partners referred                                                                    
to DHSS  as a  mega agency.   He asserted that the  work the                                                                    
department  did was  performed  by  multiple departments  in                                                                    
other states.  He cited that  in South Dakota,  the programs                                                                    
and  work  done  by  DHSS   was  spread  across  four  state                                                                    
departments.  He  cited that  Wyoming,  that  had a  smaller                                                                    
population  than   Alaska,  spread   the  work   across  two                                                                    
departments.  He  emphasized  that  it  was  the  number  of                                                                    
programs    delivered,     multi-faceted    services,    and                                                                    
vulnerability  of the  primary beneficiaries  that indicated                                                                    
how complex the department was  and why the structure needed                                                                    
to  be evaluated.  He relayed  that  the presentation  would                                                                    
further  define   the  challenges  due  to   the  number  of                                                                    
programs, staff,  and budget  size, as  well as  discuss the                                                                    
proposed solutions and work throughout the past year.                                                                           
                                                                                                                                
Commissioner Crum  spoke to  slide 4,  "DHSS is  Much Larger                                                                    
Than  Most State  Departments,   which showed  a data  table                                                                    
with  employee counts  for some  DHSS divisions,  and a  bar                                                                    
graph depicting  employee counts  for other  departments. He                                                                    
cited  that  DHSS  had  as  many  employees  as  five  other                                                                    
departments,  the  Legislature,  and the  governors   office                                                                    
combined. There  were multiple DHSS divisions  that had more                                                                    
employees  than   other  departments,  and  all   the  large                                                                    
divisions answered to a single commissioner's office.                                                                           
                                                                                                                                
Commissioner Crum  displayed slide  5, "DHSS budget  is more                                                                    
than 12 state agencies combined,   which showed a graphic of                                                                    
a set  of scales with DHSS  on one side weighed  against all                                                                    
other agencies  on the  other. He cited  that the  budget of                                                                    
DHSS ($3,441,891.3)  was greater than the  combined total of                                                                    
12  other departments,  the Legislature,  the Office  of the                                                                    
Governor, and  the Judiciary  ($3,300,674). The  DHSS budget                                                                    
was nearly 30 percent of the statewide FY 23 budget.                                                                            
                                                                                                                                
Commissioner Crum  turned to slide 6,  "Alaska Department of                                                                    
Health and  Social Services," which  showed a flow  chart of                                                                    
the department. He queried what  could be done to reduce the                                                                    
span of control,  narrow the focus of  management and staff,                                                                    
as well as be more  responsive over time to stakeholders and                                                                    
employees.                                                                                                                      
                                                                                                                                
Commissioner Crum discussed slide 7, "Executive Order                                                                           
Vision":                                                                                                                        
                                                                                                                                
     Executive Order Vision                                                                                                     
     The Reorganization of DHSS                                                                                                 
                                                                                                                                
     Goal: Provide proactive, efficient leadership and                                                                          
     management of programs to achieve better outcomes for                                                                      
     Alaskans                                                                                                                   
                                                                                                                                
     Align Current Functions & Programs                                                                                         
     1.Direct Care and Services to Alaskans in State                                                                            
     Administered Programs                                                                                                      
     2.Eligibility for Alaskans & Payment to Providers                                                                          
     Focus                                                                                                                      
                                                                                                                                
     Management to Improve Outcomes                                                                                             
     1.Innovation                                                                                                               
     2.Work Processes                                                                                                           
                                                                                                                                
Commissioner Crum turned to slide 8, "Reorganization for                                                                        
DHSS":                                                                                                                          
                                                                                                                                
     Department of Health & Social Services                                                                                     
     ? Commissioner's Office                                                                                                    
     ? Finance & Management Services                                                                                            
     ? Health Care Services                                                                                                     
     ? Behavioral Health                                                                                                        
     ? Senior & Disabilities Services                                                                                           
     ? Public Assistance                                                                                                        
     ? Public Health                                                                                                            
     ? Alaska Psychiatric Institute                                                                                             
     ? Juvenile Justice                                                                                                         
     ? Alaska Pioneer Homes                                                                                                     
     ? Office of Children's Services                                                                                            
                                                                                                                                
     Department of Health                                                                                                       
     ? Commissioner's Office                                                                                                    
     ? Finance & Management Services                                                                                            
     ? Health Care Services                                                                                                     
     ? Behavioral Health                                                                                                        
     ? Senior & Disabilities Services                                                                                           
     ? Public Assistance                                                                                                        
     ? Public Health                                                                                                            
                                                                                                                                
     Department of Family & Community Services                                                                                  
     ? Commissioner's Office                                                                                                    
     ? Finance & Management Services                                                                                            
     ? Alaska Psychiatric Institute                                                                                             
     ? Juvenile Justice                                                                                                         
     ? Alaska Pioneer Homes                                                                                                     
     ? Office of Children's Services                                                                                            
                                                                                                                                
Commissioner  Crum explained  that  the  nine public  facing                                                                    
divisions  would  have  no leadership  change  or  footprint                                                                    
change but  would be aligned  accordingly. The  alignment of                                                                    
payments,   processes,  and   programs   proposed  for   The                                                                    
Department of  Health (DOH) would allow  further innovations                                                                    
such  as value-based  care and  focusing  on chronic  health                                                                    
prevention efforts.  The Department of Family  and Community                                                                    
Services   (DFCS)  would   consist  of   the  facility-based                                                                    
divisions as  listed on  the slide.  The change  would align                                                                    
the divisions that provided direct  care and would make time                                                                    
for  specific   attention  on  issues  such   as  Office  of                                                                    
Childrens   Services  (OCS)  recruitment and  retention  and                                                                    
other topics.  He mentioned community discussions  on future                                                                    
investment  in  Pioneer  Homes,  and  issues  with  deferred                                                                    
maintenance and licensing concerns.                                                                                             
                                                                                                                                
1:11:53 PM                                                                                                                    
                                                                                                                                
Senator von  Imhof appreciated the  information on  slide 8.                                                                    
She  understood that  by splitting  DHSS into  two agencies,                                                                    
there  would be  a  greater  focus on  a  smaller number  of                                                                    
programs  to  make  it  more  manageable.  She  thought  the                                                                    
commissioner  had  identified   measurable  benchmarks.  She                                                                    
asked  if the  presentation  would address  how the  changes                                                                    
would work.                                                                                                                     
                                                                                                                                
Commissioner Crum  said "yes." He informed  that there would                                                                    
be a  slide showing  metrics and an  overview of  some near-                                                                    
term items the department would pursue.                                                                                         
                                                                                                                                
Commissioner Crum  addressed slide 9, "Department  of Family                                                                    
&   Community   Services,"   which   showed   the   proposed                                                                    
organizational  chart for  DFCS. He  asserted that  the plan                                                                    
was  done  in a  way  to  minimize disruption  to  services,                                                                    
beneficiaries, or  payments to  providers. He noted  that to                                                                    
keep  services   aligned,  the  Designated   Evaluation  and                                                                    
Treatment  Services (DET)  would be  moved from  Division of                                                                    
Behavioral Health to  DFCS in order to  stay closely aligned                                                                    
with  the  Alaska  Psychiatric   Institute  (API)  and  help                                                                    
coordinate   Title   47  (involuntary   commitment   patient                                                                    
movement  between  facilities).   The  change  aligned  with                                                                    
pointing the statutes for oversight by DFCS.                                                                                    
                                                                                                                                
Commissioner Crum continued that  the primary changes in the                                                                    
reorganization  would  occur  in the  internal  Division  of                                                                    
Finance and  Management Services  (FMS), and staff  would be                                                                    
divided to cover each department.  That change would involve                                                                    
sections  such  as  Internet  Technology  (IT),  grants  and                                                                    
contracts,  and  finance  and  budget.  The  department  was                                                                    
asking for some  new and reclassified positions  to fill out                                                                    
FMS staff and commissioners office staff.                                                                                       
                                                                                                                                
Commissioner  Crum   addressed  slide  10,   "Department  of                                                                    
Health," which  showed an organizational  chart of  DOH that                                                                    
highlighted  the   commissioners   office  and   the  deputy                                                                    
commissioners  (FMS)  office. He  noted that the  change was                                                                    
designed to  not disrupt service  or payment  delivery, with                                                                    
no  change  in leadership  or  footprint  for public  facing                                                                    
divisions.                                                                                                                      
                                                                                                                                
1:14:35 PM                                                                                                                    
                                                                                                                                
Commissioner Crum  advanced to slide 11,  "Improved Services                                                                    
for Alaskans":                                                                                                                  
                                                                                                                                
     ? More regular checks in with stakeholder groups                                                                           
     ? Improved employee experience and support                                                                                 
     ? Easier for the legislature to oversee                                                                                    
     ? More interaction with federal partners to better                                                                         
     manage programs and seek flexibilities that benefit                                                                        
     Alaska                                                                                                                     
     ? Better ability to manage crises and focus effort on                                                                      
     long-range, strategic planning                                                                                             
                                                                                                                                
Commissioner   Crum  emphasized   that   with  the   current                                                                    
structure of  DHSS, issues  that reached  the commissioners                                                                     
office required   all hands on  deck.  He posited  that with                                                                    
the additional proposed commissioners   office and a focused                                                                    
span  of   control,  leadership   would  be  able   to  more                                                                    
effectively work with stakeholders  and employees to address                                                                    
concerns  before  problems  grew.   He  recounted  that  the                                                                    
administration had  worked on many  crises and  referenced a                                                                    
lack of resources.  He used the examples of  the Division of                                                                    
Public   Assistance    (DPA)   backlog   of    over   15,000                                                                    
applications,  and  multiple   letters  of  correction  from                                                                    
federal  partners. He  asserted  that  with new  leadership,                                                                    
capital  support, and  innovation, the  department had  been                                                                    
able to  work through the problem  and create administrative                                                                    
efficiencies to  get rid  of the  backlog. He  discussed the                                                                    
Covid-19  pandemic  response  and   taking  on  new  funding                                                                    
sources.                                                                                                                        
                                                                                                                                
Senator von Imhof  mentioned the cost of  new employees. She                                                                    
looked back at  slide 7, which asserted that  there would be                                                                    
focus on  management to improve outcomes,  and innovation in                                                                    
work   processes.  She   asked  the   commissioner  if   the                                                                    
innovation and work processes would  begin when the proposed                                                                    
split occurred or if the changes had already started.                                                                           
                                                                                                                                
Commissioner   Crum  affirmed   that   the  department   was                                                                    
currently   trying  to   implement   innovative  ideas   and                                                                    
efficiencies and  would hit a  crescendo after  the proposed                                                                    
split.  He referenced  the  size of  the  divisions and  the                                                                    
support  needed   for  employees   to  correct   action.  He                                                                    
referenced the need for  conversations with federal partners                                                                    
and  other  changes  that  required   a  lot  of  managerial                                                                    
support.                                                                                                                        
                                                                                                                                
Senator von Imhof thought it  was important to be mindful of                                                                    
the   proposed   additional    financial   investment.   She                                                                    
understood the need to spend  money to improve outcomes. She                                                                    
hoped the commissioner could address  the benchmarks and how                                                                    
he  hoped to  keep costs  down  for a  department that  grew                                                                    
higher than the cost of inflation.                                                                                              
                                                                                                                                
Commissioner Crum stated affirmed  that he would address the                                                                    
topic.                                                                                                                          
                                                                                                                                
1:18:10 PM                                                                                                                    
                                                                                                                                
Commissioner  Crum   continued  to  address  slide   11.  He                                                                    
recounted  that  in  addition  to  DPA,  the  commissioners                                                                     
office and  policy staff had taken  a great deal of  time to                                                                    
address the  Covid-19 pandemic over the  previous two years.                                                                    
He mentioned  the goal of providing  resources to healthcare                                                                    
providers  around the  state and  updating  guidance to  the                                                                    
public  and  industry  partners.   He  emphasized  the  non-                                                                    
emergent issues in the department,  which had not gotten the                                                                    
same  time  and  attention.  He directed  attention  to  the                                                                    
graphic at the bottom of  the slide that showed sticky notes                                                                    
with   urgent   issues   including:  Covid-19,   OCS   staff                                                                    
retention,   Pioneer   Homes  maintenance,   Opioids,   API,                                                                    
Medicaid, Provider  Payments, Birth and  Death certificates,                                                                    
Public Assistance Backlog, and Cyberattack.                                                                                     
                                                                                                                                
Commissioner  Crum  acknowledged   that  there  were  always                                                                    
issues and  crises and there was  never a  good  time  for a                                                                    
move  such   as  the  one   proposed,  but   emphasized  the                                                                    
importance  decisive  action.   He  emphasized  that  future                                                                    
events were unknown and explained  that much of the proposed                                                                    
change  was from  division leaders  with many  years in  the                                                                    
system.  He  did not  think  the  state was  putting  enough                                                                    
energy  into  innovating  for   the  future  in  facilities,                                                                    
programs, quality of care, and  other issues since the state                                                                    
was  stuck in  crisis mode  all the  time. He  asserted that                                                                    
more  bandwidth for  each commissioner's  office and  policy                                                                    
staff  would mean  more  meaningful  engagement, which  took                                                                    
time.  He   stressed  the  importance  of   more  meaningful                                                                    
engagement and innovation.                                                                                                      
                                                                                                                                
Commissioner Crum looked at slide 12, "Why an Executive                                                                         
Order?":                                                                                                                        
                                                                                                                                
     Use of an EO is the proper Governor's authority for                                                                        
     administrative changes under Article III, Section 23                                                                       
     of the Alaska Constitution                                                                                                 
                                                                                                                                
     The governor  may make changes  in the  organization of                                                                    
     the executive branch or in  the assignment of functions                                                                    
     among  its  units  which  he  considers  necessary  for                                                                    
     efficient administration.                                                                                                  
                                                                                                                                
Commissioner  Crum asserted  that  executive  orders were  a                                                                    
useful tool that were  specifically contemplated by Alaskas                                                                     
Constitutional Convention.                                                                                                      
                                                                                                                                
Commissioner Crum showed slide 13, "Why Not Legislation?":                                                                      
                                                                                                                                
     ? This is not substantive law change                                                                                       
     ? More certainty on programs remaining unchanged                                                                           
     ? Definitive timeline                                                                                                      
     ? Executive Order is a more concise document                                                                               
     ? Less disruptive                                                                                                          
                                                                                                                                
Senator  von Imhof  referenced the  legislative report  from                                                                    
the Division  of Legal and Research  Services dated February                                                                    
14,  2022  (copy  on  file)   that  listed  some  challenges                                                                    
presented by  the EO, and  a response by DOL  dated February                                                                    
18, 2022 (copy on file).                                                                                                        
                                                                                                                                
1:22:13 PM                                                                                                                    
                                                                                                                                
STACIE KRALY,  DIRECTOR, CIVIL DIVISION, DEPARTMENT  OF LAW,                                                                    
had  seen  the  concerns  raised by  the  legislative  legal                                                                    
division  with  respect  to  EO   121,  and  referenced  the                                                                    
response  by the  department. She  stated that  DOL did  not                                                                    
believe  that   the  issues  raised  by   Legislative  Legal                                                                    
Services  rendered  the  EO  unconstitutional  in  any  way,                                                                    
shape, or  form, but  believed that the  EO was  well within                                                                    
the  governors   authority.  She  continued  that  the  more                                                                    
ministerial   concerns   that   were   raised,   which   she                                                                    
characterized as simple wordsmithing  issues, were not flaws                                                                    
to the EO.  The department believed the  decisions that were                                                                    
made  and  the  crafting  of  the  EO  was  consistent  with                                                                    
previous EOs.  she  cited that there had been  well over 100                                                                    
EOs in the history of the state.                                                                                                
                                                                                                                                
Senator  von  Imhof  asked  if   there  had  been  over  100                                                                    
executive orders.                                                                                                               
                                                                                                                                
Ms. Kraly answered yes.                                                                                                         
                                                                                                                                
Senator  von  Imhof  asked  if   there  had  been  over  100                                                                    
executive orders bifurcating departments.                                                                                       
                                                                                                                                
Ms.  Kraly   and  answered   no,    and  relayed   that  the                                                                    
constitution  allowed for  the  governor to  change how  the                                                                    
government  was  structured  through  executive  order.  She                                                                    
referenced examples such as moving  the Alaska Pioneer Homes                                                                    
to DHSS in 2004 and  moving the Division of Corrections from                                                                    
DHSS to its own department.                                                                                                     
                                                                                                                                
Senator   von   Imhof   mentioned  that   there   was   some                                                                    
disagreement between Legislative Legal  Services and DOL and                                                                    
wondered  if  there  were  remaining  technical  items  that                                                                    
needed to  be addressed.  She asked  if DOL  was comfortable                                                                    
potentially  doing accompanying   clean  up  legislation  to                                                                    
address some  gray areas in the  EO or items that  were seen                                                                    
differently by Legislative Legal and DOL.                                                                                       
                                                                                                                                
Ms. Kraly  thought that  many executive  orders in  the past                                                                    
had companion legislation that  had addressed some technical                                                                    
corrections, that  were done  concurrent with  the EO  or in                                                                    
subsequent  legislative  sessions.   She  stated  that  such                                                                    
legislation was  a possibility if there  were questions that                                                                    
the department or  members of either body  thought needed to                                                                    
be addressed.  She continued that additionally,  many of the                                                                    
EOs  had   been  accompanied  by   a  revisors    bill.  She                                                                    
referenced some  examples provided along with  DOLs response                                                                    
to  the  memo  from  the  Division  of  Legal  and  Research                                                                    
Services.  She   summarized  that   some  things   could  be                                                                    
 tightened up.   She continued that  the department  did not                                                                    
believe there  were any items that  needed corrective action                                                                    
but was not  adverse to working with either  body or putting                                                                    
forth legislation itself. She  added that the department had                                                                    
wanted  to ensure  the  EO would  happen  before making  any                                                                    
decisions about concurrent or companion legislation.                                                                            
                                                                                                                                
1:26:11 PM                                                                                                                    
                                                                                                                                
Senator  Wielechowski was  not sure  why the  matter was  an                                                                    
executive order. He stated that  subject had come before the                                                                    
legislature   the  previous   year   and   there  had   been                                                                    
significant    and   justified    concern   by    bipartisan                                                                    
legislators.  He   questioned  why  the  governor   had  not                                                                    
introduced  a bill  on the  topic.  He thought  a split  was                                                                    
probably  in  order.  He  considered  the  100-page  EO  and                                                                    
referenced language by  legislative attorneys that mentioned                                                                    
that the EO  greatly exceeded the length and  scope of prior                                                                    
executive  orders  that  split or  merged  executive  branch                                                                    
departments.  The  language  went  on to  say  that  the  EO                                                                    
contained a number of  drafting errors, introduced ambiguity                                                                    
into statutes, and  amended statutes in a  manner that could                                                                    
be considered substantive.                                                                                                      
                                                                                                                                
Senator Wielechowski continued to  address the memo from DOL                                                                    
quoted  page 3,  which  indicated EO  121 contained  several                                                                    
dozen    sections   that    warranted   the    legislature's                                                                    
consideration. The memo cited  that Section 35 re-enacted 26                                                                    
statute sections  that were currently codified,  and many of                                                                    
the   reenactments  were   problematic.   He  listed   other                                                                    
references to the EO in  the memo, including items that made                                                                    
substantive  changes to  law. He  opined  that the  proposed                                                                    
changes  were  inappropriate  for  an  executive  order.  He                                                                    
asserted the  EO would prompt lawsuits  which would generate                                                                    
additional   cost.  He   asserted   that  the   EO  was   an                                                                    
unconstitutional a violation of the separation of powers.                                                                       
                                                                                                                                
Senator  Wielechowski  thought  the EO  was  the  governor's                                                                    
attempt to pass  laws. He pointed out that the  EO relied on                                                                    
Article 3,  but failed to  cite Article 3 Section  22, which                                                                    
stated  that  all   executive  and  administrative  offices,                                                                    
departments, and agencies of the  state government and their                                                                    
respective  powers  and duties  shall  be  allocated by  law                                                                    
among and within not more  than 20 principal departments. He                                                                    
thought  the proposed  creation  of a  new organization  and                                                                    
allocation  of  powers, functions  and  duties  was a  clear                                                                    
violation of Article 3, Section 22.                                                                                             
                                                                                                                                
Senator Wielechowski thought  there were multiple violations                                                                    
of the constitution and law  within the EO. He recalled that                                                                    
the  previous year  the administration  had  avowed to  work                                                                    
closely with the legislature, yet  he had not been contacted                                                                    
by  the administration  to discuss  the proposed  change. He                                                                    
questioned  the inability  to amend  the  EO. He  reiterated                                                                    
that  it  was   probably  not  a  bad  idea   to  split  the                                                                    
department, but thought the  method was unconstitutional. He                                                                    
hoped to hear  from legislative attorneys on  the matter. He                                                                    
thought  the  EO would  cost  the  state  a great  deal  and                                                                    
disrupt the  lives of many  Alaskans that depended  upon the                                                                    
department for services.                                                                                                        
                                                                                                                                
1:30:41 PM                                                                                                                    
                                                                                                                                
Co-Chair  Bishop  asked  if Senator  Wielechowski  wanted  a                                                                    
response  from   the  administration  or  the   Division  of                                                                    
Legislative Legal and Research Services.                                                                                        
                                                                                                                                
Senator  Wielechowski   deferred  to  Co-Chair   Bishop.  He                                                                    
thought the  committee could  speed hours  on the  topic. He                                                                    
lamented  the lack  of opportunity  to make  changes through                                                                    
the committee process. He  questioned why the administration                                                                    
did not submit a bill rather than an EO.                                                                                        
                                                                                                                                
Commissioner  Crum  understood  that  the  advice  from  DOL                                                                    
indicated   that  it   was  within   the   purview  of   the                                                                    
administration  to   go  forward  with  the   EO  under  the                                                                    
constitution.  He  commented  on  the certainty  of  an  EO,                                                                    
knowing that there  was a fixed timeline with  a positive or                                                                    
negative vote.  He relayed  that the EO  did not  change the                                                                    
way  programs  were administered,  and  the  EO was  brought                                                                    
forward out of sensitivity to the individuals.                                                                                  
                                                                                                                                
1:32:23 PM                                                                                                                    
                                                                                                                                
Co-Chair Bishop  hypothesized that the EO  passed, and asked                                                                    
if Commissioner Crum anticipated follow-up legislation.                                                                         
                                                                                                                                
Ms.  Kraly   stated  that   in  many   instances,  companion                                                                    
legislation  or  revisors   bills  did follow  the  EO.  She                                                                    
thought  it  was possible  that  such  legislation would  be                                                                    
necessary,  and she  thought  there would  need  to be  some                                                                    
evaluation. She  thought the  concept of  reorganization and                                                                    
management of  the executive branch was  clearly vested with                                                                    
the  governor under  the constitution.  She emphasized  that                                                                    
the EO did not allocate  or reallocate anything that was not                                                                    
already allocated  to DHSS,  but rather  was taking  a mega-                                                                    
agency and  splitting it. She  asserted that the EO  did not                                                                    
make any  substantive changes to  any existing  statute that                                                                    
had  not been  passed  or vetted  through prior  legislative                                                                    
action.                                                                                                                         
                                                                                                                                
Ms. Kraly understood concerns about  the size and breadth of                                                                    
the proposal, but  wanted to be clear  that the constitution                                                                    
did  not have  a limit  on  the complexity  of an  executive                                                                    
order.  She thought  that Senator  Wielechowski  had made  a                                                                    
good point,  but questioned the  length of a  potential bill                                                                    
if the  EO was 100 pages.  She emphasized that with  a bill,                                                                    
every program would be subject  to review and amendment, and                                                                    
everything would  be at risk. She  echoed the commissioners                                                                     
comments  that  the  EO  was   being  done  for  reasons  of                                                                    
certainty. She emphasized  that no change was  being made to                                                                    
any program  currently operating within DHSS.  She thought a                                                                    
bill that  opened programs and  services to  amendment would                                                                    
be hugely problematic for the people that were served.                                                                          
                                                                                                                                
1:35:41 PM                                                                                                                    
                                                                                                                                
Co-Chair  Bishop hoped  that the  change  would inspire  and                                                                    
improve  efficiencies.   He  wanted  improvements   for  the                                                                    
working public, parents, and children.                                                                                          
                                                                                                                                
Senator  von  Imhof  understood  Ms.  Kraly's  comments  but                                                                    
thought there seemed  to be a gray  area of misunderstanding                                                                    
that the  legislative body would  have to work  through. She                                                                    
thought spending more time could  sometimes save time later.                                                                    
She  thought there  needed  to  be more  time  spent on  the                                                                    
matter and hoped  there would be communication  after the EO                                                                    
was  enacted. She  thought there  were some  technical fixes                                                                    
that warranted a revisors bill.                                                                                                 
                                                                                                                                
Commissioner  Crum stated  that if  the EO  were to  go into                                                                    
effect   and  become   law   on  March   19,   it  was   the                                                                    
administration's  intention  to   continue  to  engage  with                                                                    
stakeholders  and   the  legislature.  He   mentioned  being                                                                    
focused on  external stakeholders and acknowledged  that the                                                                    
administration could have done  more direct work in engaging                                                                    
with  legislators. He  mentioned implementation  issues that                                                                    
could be  engaged with over  the interim and brought  to the                                                                    
legislature the following session.                                                                                              
                                                                                                                                
1:38:24 PM                                                                                                                    
                                                                                                                                
Senator  Wielechowski affirmed  that  the  governor had  the                                                                    
right  to  reorganize   but  did  not  have   the  right  to                                                                    
reallocate, and  cited Section 22.  He asserted that  the EO                                                                    
was a  violation of the  constitution and was  a fundamental                                                                    
reallocation of the duties and  powers of DHSS. He addressed                                                                    
the assertion  that a  bill was not  introduced in  order to                                                                    
avoid  changes by  the legislature.  He emphasized  that the                                                                    
administration   could   not    avoid   the   constitutional                                                                    
obligation to file  a piece of legislation  because of worry                                                                    
over  legislative  changes,   which  was  the  legislatures                                                                     
constitutional  authority.  He  referenced having  the  same                                                                    
conversation  one year  previously.  He thought  the EO  was                                                                    
replete  with  drafting  errors and  mistakes,  as  well  as                                                                    
substantive changes to the law.                                                                                                 
                                                                                                                                
Senator  Wielechowski continued  his remarks.  He reiterated                                                                    
that the departmental  split was not a bad  idea and thought                                                                    
there would be  a lot of support in the  legislature for the                                                                    
concept.  He qualified  that legislators  did  not like  the                                                                    
fact  that   the  EO  was   a  violation  of  law   and  the                                                                    
constitution. He  thought the EO was  a heavy-handed attempt                                                                    
to  put  something  in  place   without  going  through  the                                                                    
appropriate process of the legislature.                                                                                         
                                                                                                                                
Commissioner Crum referenced slide 14, "Executive Orders":                                                                      
                                                                                                                                
     Used over the years to realign state agencies to                                                                           
     better serve the public:                                                                                                   
     ? EO 108 moved the Alaska Pioneer Homes and regulation                                                                     
     of child-care facilities to DHSS (2003).                                                                                   
     ? EO 55 created the Department of Corrections, moving                                                                      
     the duties from DHSS (1984).                                                                                               
     ? EO has been used by many Governors Egan, Sheffield,                                                                      
     Murkowski, Walker, (etc.)                                                                                                  
                                                                                                                                
Commissioner Crum cited that EO  55 was originally disproved                                                                    
in the year prior to its  passage, after being worked on and                                                                    
then reintroduced  and passed into law.  The legislature had                                                                    
provided  input  and changes  were  made,  which he  thought                                                                    
highlighted that  the process worked.  He mentioned  an idea                                                                    
that  perhaps the  legislature  could  consider putting  the                                                                    
commissioner of  DFCS as a  statutory advisor to  the Alaska                                                                    
Mental Health Trust Authority (AMHTA).  He mentioned EO 119,                                                                    
which  had  pertained  to  adding  a  second  seat  to  some                                                                    
statutory advisory boards.                                                                                                      
                                                                                                                                
1:42:03 PM                                                                                                                    
                                                                                                                                
Commissioner  Crum turned  to slide  15,  "Timeline for  the                                                                    
Executive Order":                                                                                                               
                                                                                                                                
     ? Executive Order  121 was introduced the  first day of                                                                    
     session January 18, 2022.                                                                                                  
       The  legislature has  60 days to  come together  in a                                                                    
     joint session to disapprove the reorganization.                                                                            
     ? Upon  approval, DHSS will continue  to implementation                                                                    
     plans.                                                                                                                     
     ? Effective Date: July 1, 2022                                                                                             
                                                                                                                                
Commissioner   Crum   considered  slide   16,   "Stakeholder                                                                    
Engagement: Lessons Learned":                                                                                                   
                                                                                                                                
     ?  Meaningful engagement  takes time:  Leadership needs                                                                    
     to  spend more  time  with both  internal and  external                                                                    
     stakeholders                                                                                                               
     ? Tribal  partners recommended Tribal liaison  roles in                                                                    
     each Commissioner's office                                                                                                 
     ?    Stakeholders   recommended    transition   liaison                                                                    
     positions in each commissioner's offices                                                                                   
        Q and  A from  stakeholders provided  valuable input                                                                    
     which will be utilized in the implementation process                                                                       
     ? Repeated engagement  ensures better communication and                                                                    
     dispels misinformation                                                                                                     
                                                                                                                                
Commissioner Crum emphasized  the work done by  DHSS to meet                                                                    
with stakeholders that represented  services provided by the                                                                    
department.                                                                                                                     
                                                                                                                                
Co-Chair Bishop asked  if bullet 2, a  tribal liaison, would                                                                    
be implemented and how it would work.                                                                                           
                                                                                                                                
Commissioner Crum described the title  as a role rather than                                                                    
a certain  individual. He recounted having  the conversation                                                                    
with the  Alaska Native  Health Board,  which had  asked the                                                                    
same question  as Co-Chair Bishop.  He pondered  whether the                                                                    
role  would be  filled be  a single  person, or  whether the                                                                    
role be  part of a  positions  job  as a policy  advisor. He                                                                    
described  that  DOH had  a  robust  tribal reclaiming  unit                                                                    
within   the   Medicaid   section,  which   had   consistent                                                                    
communication with tribal partners.  He mentioned the Indian                                                                    
Child Welfare  Act and Tribal  Compact Liaisons  within DFCS                                                                    
as  examples.   He  summarized  that   there  would   be  an                                                                    
individual  liaison position  within DFCS,  while in  DOH it                                                                    
would be viewed as a role.                                                                                                      
                                                                                                                                
1:46:05 PM                                                                                                                    
                                                                                                                                
SYLVAN  ROBB, ASSISTANT  COMMISSIONER, DEPARTMENT  OF HEALTH                                                                    
AND SOCIAL SERVICES, displayed slide 17:                                                                                        
                                                                                                                                
     Department of Family & Community Services                                                                                  
                                                                                                                                
     ? Office of Children's Services                                                                                            
     ? Division of Juvenile Justice                                                                                             
     ? Alaska Psychiatric Institute                                                                                             
     ? Pioneer Homes                                                                                                            
     Full Time Positions 1847                                                                                                   
     Total Budget: $441,319.0                                                                                                   
                                                                                                                                
     Department of Health                                                                                                       
     ? Medicaid                                                                                                                 
     ? Public Health                                                                                                            
     ? Public Assistance                                                                                                        
     ? Behavioral Health                                                                                                        
     ? Health Care Services                                                                                                     
     ? Senior & Disabilities                                                                                                    
     Full Time Positions 1446                                                                                                   
     Total Budget: $3,071,214.4                                                                                                 
                                                                                                                                
     Strategic Investment                                                                                                       
     GF Match - $668.7                                                                                                          
     Federal - $470.2                                                                                                           
     I/A - $1,188.9                                                                                                             
     Total = $2,327.8                                                                                                           
     New PCNs = 13                                                                                                              
     Reclassed PCNs = 10                                                                                                        
                                                                                                                                
Ms. Robb  noted that  the proposed  new departments  did not                                                                    
split evenly in  terms of the number of positions,  and in a                                                                    
similar manner  the budgets did  not split evenly.  She drew                                                                    
attention   to  the   investment  needed   to  achieve   the                                                                    
reorganization,  listed  under  Strategic  Investment.   She                                                                    
noted that  two of  the proposed  13 new  positions included                                                                    
two   positions   that    technically   resided   in   other                                                                    
departments:  an  administrative  services director,  and  a                                                                    
department technology officer.                                                                                                  
                                                                                                                                
Ms. Robb  highlighted slide 18, "DFCS,  Departmental Support                                                                    
Services  -7.5  New  Positions  --  $1,195.0  total,"  which                                                                    
showed  a table  of  new 7.5  positions  being proposed  for                                                                    
DFCS.  She added  that the  .5 position  was a  result of  a                                                                    
combined total  of three on-call IT  support persons slotted                                                                    
to work  a few months throughout  the year. The cost  of new                                                                    
positions for DFCS was just under $1.2 million.                                                                                 
                                                                                                                                
Ms.  Robb looked  at slide  19, "DFCS,  Departmental Support                                                                    
Services  -  9  Reclassified Positions  --  $397.9  total*,                                                                     
which showed a  table with new positions  being proposed for                                                                    
reclassification. She  detailed that  many of  the positions                                                                    
in  question  would  provide  support for  the  IT  team  or                                                                    
administrative  support. The  only division  proposed to  be                                                                    
split was the support division,  which resulted in a need to                                                                    
backfill in a few places.                                                                                                       
                                                                                                                                
Ms.  Robb   addressed  slide  20,  "Department   of  Health,                                                                    
Departmental Support Services -  5.5 New Positions -- $692.6                                                                    
total,"  which showed  a table  with the  5.5 new  positions                                                                    
proposed  for DOH.  The half  position was  achieved in  the                                                                    
same  way as  described  for DFCS,  with  very part-time  IT                                                                    
positions that  were meant  to backfill  when staff  were on                                                                    
leave or there was a vacancy.                                                                                                   
                                                                                                                                
Co-Chair Bishop commented on a position in Fairbanks.                                                                           
                                                                                                                                
Ms. Robb noted  that there had been an  on-call IT positions                                                                    
in Fairbanks for DFCS as well.                                                                                                  
                                                                                                                                
Co-Chair Bishop commented on the importance for coverage.                                                                       
                                                                                                                                
1:49:57 PM                                                                                                                    
                                                                                                                                
Ms.  Robb  advanced  to slide  21,  "Department  of  Health,                                                                    
Departmental Support  Services - 1 Reclassified  Position --                                                                    
$42.3   total,"  which   showed   a  table   with  the   one                                                                    
reclassified position for DOH.                                                                                                  
                                                                                                                                
Senator Wielechowski asked if the  EO was shared with anyone                                                                    
in the legislature before it was introduced.                                                                                    
                                                                                                                                
Commissioner Crum answered in the affirmative.                                                                                  
                                                                                                                                
Senator Wielechowski  asked who the  EO was shared  with and                                                                    
when it had been shared.                                                                                                        
                                                                                                                                
Commissioner  Crum  informed  that  the  administration  had                                                                    
submitted  the EO  to Senator  Wilson's in  late October  in                                                                    
order to engage  with the Division of  Legislative Legal and                                                                    
Research.                                                                                                                       
                                                                                                                                
Senator Wielechowski  asked if the  EO had been  shared with                                                                    
any additional legislators.                                                                                                     
                                                                                                                                
Commissioner Crum  noted that the administration  had needed                                                                    
a  member   in  order  to  engage   with  Legislative  Legal                                                                    
Services. He recounted that Senator  Wilson had been present                                                                    
when  Co-Chair  Bishop  had brought  forward  the  idea  the                                                                    
previous  March.  Senator  Wilson had  communicated  to  the                                                                    
department that he would be the intermediary.                                                                                   
                                                                                                                                
Senator Wielechowski  asked if the  EO was shared  with only                                                                    
one legislator before it was introduced.                                                                                        
                                                                                                                                
Commissioner Crum  stated that  the EO  was shared  with the                                                                    
co-chairs of  the House Finance  as well as some  members of                                                                    
the House Health and Social Services Committee.                                                                                 
                                                                                                                                
Senator Wielechowski asked when the EO had been shared.                                                                         
                                                                                                                                
Commissioner  Crum offered  get back  to the  committee with                                                                    
the information.                                                                                                                
                                                                                                                                
Commissioner Crum looked at slide  22, "Measures and Metrics                                                                    
- Benchmarks":                                                                                                                  
                                                                                                                                
     Department of Health                                                                                                       
                                                                                                                                
     ? Make progress in meeting the goals for Healthy                                                                           
     Alaskans 2030                                                                                                              
     ? Hire and retain a Finance Officer and full grants                                                                        
     and contracts team                                                                                                         
     ? Issue RFP(s) and awards for new coordinated care                                                                         
     demonstration projects                                                                                                     
     ? Successfully implement an online application for                                                                         
     Medicaid and other public assistance programs                                                                              
     ? Improve processing rate for procurement and                                                                              
     contracts to under 90 days                                                                                                 
                                                                                                                                
     Department of Family & Community Services                                                                                  
     ? Consolidate licensing regulations for longterm care                                                                      
     facilities, group homes, and foster homes                                                                                  
     ? Reduce turnover of front-line OCS by 20% within 12                                                                       
     months                                                                                                                     
     ? Achieve full census capability at API within 12                                                                          
     months                                                                                                                     
     ? Increase recruitment and retention of Juvenile                                                                           
     Justice Officers by 25%                                                                                                    
     ? Improve processing rate for procurement and                                                                              
     contracts to under 90 days                                                                                                 
                                                                                                                                
Commissioner  Crum noted  that the  slide addressed  some of                                                                    
the questions  posed earlier by Senator  von Imhof regarding                                                                    
measures  and metrics.  He discussed  stability and  assured                                                                    
that programs and services would  not be disrupted. He cited                                                                    
that from  July 1 forward,  there would be  focused internal                                                                    
alignment.  He  mentioned  grants and  contracts  staff  and                                                                    
finance staff and  high turnover rate. He hoped  for a fully                                                                    
staffed  finance staff  in the  near term  after the  EO was                                                                    
enacted.  He  noted  that  there  were  specific  items  for                                                                    
improvement  with identified  timelines and  the information                                                                    
was  in the  members   packets. He  mentioned designing  the                                                                    
system of  care, and  changes to DOH.  He noted  that Alaska                                                                    
was one  of the  last remaining fee-for-service  states, and                                                                    
pressure from  federal partners  to move  toward value-based                                                                    
care.  He   emphasized  the   importance  of   working  with                                                                    
partners.  He  mentioned  long term  health  prevention  and                                                                    
health savings.                                                                                                                 
                                                                                                                                
1:54:03 PM                                                                                                                    
                                                                                                                                
Co-Chair  Bishop  mentioned  chronic health  prevention  and                                                                    
reminded  that  he had  asked  Commissioner  Crum a  related                                                                    
question during his confirmation hearing.                                                                                       
                                                                                                                                
Commissioner Crum  mentioned Healthy  You 2022, which  was a                                                                    
department-wide program with  different monthly initiatives.                                                                    
He  mentioned a  tool kit  for businesses.  The program  had                                                                    
features   addressing  activity,   mental  health,   healthy                                                                    
eating,  and long-term  healthy  choices.  He mentioned  the                                                                    
importance of  physical activity  and health in  relation to                                                                    
the Covid-19 pandemic.                                                                                                          
                                                                                                                                
Commissioner Crum showed slide 23, "Implementation."                                                                            
                                                                                                                                
Ms. Robb referenced slide 24, which  showed a flow chart  of                                                                    
ongoing staff and stakeholder engagement  and was one of two                                                                    
slides  focused on  implementation. She  assured that  there                                                                    
was  a detailed  plan that  covered everything  from how  to                                                                    
split the  department in the states   accounting system down                                                                    
to  smaller  considerations  like   the  Division  of  Motor                                                                    
Vehicles issuing  state IDs  for  both new  departments. She                                                                    
drew attention  to the arrow  on the far left,  which showed                                                                    
ongoing stakeholder  and staff engagement. She  commented on                                                                    
the  importance of  the ongoing  engagement.  She noted  the                                                                    
three time  periods shown on  the slide, which  included the                                                                    
year prior up  to introduction of the EO.  She mentioned the                                                                    
largest item in  the category was submitting  the budget for                                                                    
the  two departments.  Another  large  item was  stakeholder                                                                    
engagement.                                                                                                                     
                                                                                                                                
Ms. Robb  pointed out  the  60 day  review period   shown on                                                                    
the slide, which  was currently in effect. The  big focus of                                                                    
the time period  had been engaging with  the legislature and                                                                    
stakeholder  outreach, as  well  as behind  the scenes  work                                                                    
preparing  for  if  the  EO  moved  forward.  She  mentioned                                                                    
meetings with  other departments and being  prepared to move                                                                    
forward once  the 60  days was over.  The third  time period                                                                    
addressed  on  the  slide  was  March  2022     Post  60-day                                                                    
Consideration.                                                                                                                  
                                                                                                                                
1:58:26 PM                                                                                                                    
                                                                                                                                
Ms. Robb  turned to  slide 25, which  was a  continuation of                                                                    
the flow chart  on the previous slide. The  chart showed the                                                                    
continuing  implementation,  and  she  emphasized  that  the                                                                    
department would  be continuing with  stakeholder engagement                                                                    
and reaching out  to staff. She anticipated  that the period                                                                    
of April  through the  July 1  implementation date  would be                                                                    
very  busy with  preparatory work.  She discussed  financial                                                                    
closeouts in July and August  and moving towards longer term                                                                    
issues  in  the  months  beyond. She  cited  work  with  the                                                                    
departments 350 different IT applications in use.                                                                               
                                                                                                                                
Commissioner  Crum  showed  slide 26,  "DHSS  Reorganization                                                                    
Website - reorg.dhss.alaska.gov," which  showed a graphic of                                                                    
the  DHSS   Reorganization  website.   He  noted   that  the                                                                    
department  had a  public-facing website.  He asserted  that                                                                    
the department  had tried to  update the website  with items                                                                    
that  had  been  submitted  to  the  legislature,  including                                                                    
letters  of support.  He mentioned  letters from  the Alaska                                                                    
State  Hospital and  Nursing  Home  Association, the  Alaska                                                                    
Commission on  Aging, the Pioneer Homes  Advisory Board, the                                                                    
Governors   Council  on  Disability and  Special  Education,                                                                    
AgeNet,  and the  Alaska Behavioral  Health Association.  He                                                                    
noted  that department  had  worked with  and  met with  the                                                                    
groups, which were large and diverse.                                                                                           
                                                                                                                                
Commissioner  Crum displayed  slide 27,  "More Questions  or                                                                    
Suggestions?":                                                                                                                  
                                                                                                                                
     Questions   on    how   reorganization    will   impact                                                                    
     stakeholders or providers can be sent to:                                                                                  
                                                                                                                                
     dhssreorg@alaska.gov                                                                                                       
                                                                                                                                
2:02:00 PM                                                                                                                    
                                                                                                                                
Co-Chair Bishop OPENED public testimony.                                                                                        
                                                                                                                                
2:02:23 PM                                                                                                                    
                                                                                                                                
JOSHUA MORGAN,  SELF, FAIRBANKS (via  teleconference), spoke                                                                    
in  opposition  to   EO  121,  and  read   from  a  prepared                                                                    
statement.  He did  not feel  as though  the proposed  split                                                                    
would address the  problems faced by the  Division of Public                                                                    
Assistance  (DPA). He  stated that  as  a public  assistance                                                                    
caseworker, he  saw first-hand results of  policy decisions.                                                                    
He cited that  as of December 2020, there was  an average of                                                                    
one caseworker for  every 1,400 people on  assistance in the                                                                    
state. He listed assistance  programs including Medicaid and                                                                    
food stamps.  He argued that  the number was  increasing. He                                                                    
discussed  the reduction  in  caseworkers  that approved  or                                                                    
denied  benefits,  which  was  demoralizing  for  staff.  He                                                                    
emphasized the  need for more  staff to assist  Alaskans. He                                                                    
summarized  that the  EO added  more management  rather than                                                                    
adding  more  needed  staff.   He  referenced  an  Ombudsman                                                                    
investigation. He did  not feel the EO was the  right way to                                                                    
deal with issues in the agency.                                                                                                 
                                                                                                                                
2:06:14 PM                                                                                                                    
                                                                                                                                
JOEY TILLSON,  ASEA MEMBER, KETCHIKAN  (via teleconference),                                                                    
testified in opposition to the  EO. She relayed that she was                                                                    
the chair of the DPA  Committee for her union. The committee                                                                    
had been  formed due to  numerous complaints  from employees                                                                    
regarding  the reorganization  associated with  the Covid-19                                                                    
pandemic.                                                                                                                       
                                                                                                                                
Ms. Tillson continued her  testimony. She mentioned staffing                                                                    
issues  and  employees   working  overtime.  She  referenced                                                                    
organizational charts  with vacant positions  being deleted.                                                                    
She cited  numbers of workers  statewide, and that  the call                                                                    
center  took   approximately  1,800   calls  per   day.  She                                                                    
questioned  why   money  was   being  spent  to   split  the                                                                    
department  when  it  could  be   spent  to  strengthen  the                                                                    
organization. She  referenced a  town hall meeting  with the                                                                    
commissioner  and  a town  hall  meeting  with the  division                                                                    
director.  She complained  of a  lack of  policy information                                                                    
meetings.                                                                                                                       
                                                                                                                                
2:09:32 PM                                                                                                                    
                                                                                                                                
ROBIN  O'DONOGHUE, ALASKA  PUBLIC  INTEREST RESEARCH  GROUP,                                                                    
ANCHORAGE (via  teleconference), spoke in opposition  to the                                                                    
EO. His organization had closely  followed the process of EO                                                                    
121.  He  shared  the  primary concern  of  lack  of  public                                                                    
participation, both  from users and from  organizations that                                                                    
worked with DHSS. He thought  there was consensus that there                                                                    
were many problems  with the department, but  thought it was                                                                    
unclear whether the restructure  would address the problems.                                                                    
He cited  the cost  of the proposed  split. He  pondered how                                                                    
the split  would benefit Alaskans  that were  having trouble                                                                    
navigating the system.                                                                                                          
                                                                                                                                
Mr. ODonoghue  thought  it had been confusing  to follow the                                                                    
departments   testimony and  cited changing  numbers of  new                                                                    
positions.  He  referenced   Commissioner  Crums   testimony                                                                    
regarding  the  consultation  of staff.  He  mentioned  that                                                                    
nonprofit service  providers had not received  any outreach.                                                                    
He urged  members of  the legislature to  review the  EO and                                                                    
ensure that it was thoroughly vetted.                                                                                           
                                                                                                                                
2:11:51 PM                                                                                                                    
                                                                                                                                
ANDREE   MCLEOD,  SELF,   ANCHORAGE  (via   teleconference),                                                                    
testified in  opposition to  the EO.  She asserted  that she                                                                    
relied  on   DHSS  programs.  She   thought  the   EO  would                                                                    
negatively affect  people. She  thought the EO  went against                                                                    
legislative authority. She asserted  that there did not need                                                                    
to  be   a  new  department   in  order  for   directors  to                                                                    
collaborate.  She did  not think  there was  a need  for two                                                                    
commissioners. She thought there  had not been enough public                                                                    
input.  She  mentioned   the  Alaska  Psychiatric  Institute                                                                    
(API). She supported a full legislative process.                                                                                
                                                                                                                                
2:14:54 PM                                                                                                                    
                                                                                                                                
Co-Chair Bishop CLOSED public testimony.                                                                                        
                                                                                                                                
Co-Chair Bishop asked Commissioner Crum  to come back to the                                                                    
table.  He thought  it  sounded as  though  there were  some                                                                    
departmental  employees  that  had testified.  He  suggested                                                                    
that  the  commissioner follow  up  with  the employees.  He                                                                    
stressed the importance of employees.                                                                                           
                                                                                                                                
Commissioner Crum agreed. He stated  that he had worked with                                                                    
each division over  the previous two years and  had done two                                                                    
town hall meetings regarding the  EO. He cited that a number                                                                    
of  employee  concerns outside  the  topic  of the  EO  were                                                                    
brought forward, and  there had been two  separate town hall                                                                    
meetings with  staff at  DPA. He cited  the primary  goal of                                                                    
addressing staff concerns.                                                                                                      
                                                                                                                                
Co-Chair Bishop set the EO aside.                                                                                               
                                                                                                                                
Executive  Order 121  was HEARD  and HELD  in committee  for                                                                    
further consideration.                                                                                                          
                                                                                                                                
Co-Chair Bishop handed the gavel to Co-Chair Stedman.                                                                           
                                                                                                                                
2:16:34 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:24:35 PM                                                                                                                    
RECONVNED                                                                                                                       
                                                                                                                                
^PRESENTATION: COMPETITIVENESS OF ALASKA'S  OIL & GAS REGIME                                                                  
[continuation]                                                                                                                
                                                                                                                                
2:24:41 PM                                                                                                                    
                                                                                                                                
Co-Chair   Stedman  explained   that  the   committee  would                                                                    
continue to  address presentation  from earlier in  the day.                                                                    
There  was an  addendum  slide presentation  (copy on  file)                                                                    
that  would  address  discussion   and  questions  from  the                                                                    
morning meeting.                                                                                                                
                                                                                                                                
2:25:29 PM                                                                                                                    
                                                                                                                                
MIKE  CLINE,  DIRECTOR,  CORPORATE  STRATEGY,  GAFFNEYCLINE,                                                                    
introduced himself.                                                                                                             
                                                                                                                                
NICK   FULFORD,  DIRECTOR,   GAS   AND  ENERGY   TRANSITION,                                                                    
GAFFNEYCLINE, introduced himself.                                                                                               
                                                                                                                                
2:25:40 PM                                                                                                                    
                                                                                                                                
Mr.  Cline noted  that at  the meeting  earlier in  the day,                                                                    
there  had been  a  discussion about  the fiscal  comparison                                                                    
slides. There  had been questions  as to whether  the slides                                                                    
accurately   reflected  some   of   the  applicable   fiscal                                                                    
components.  After  some  consideration, he  had  found  the                                                                    
issue. The original  slide assumed an oil  price of $70/bbl,                                                                    
and $40/bbl in profit to  use as a comparison for government                                                                    
take  components.  He  thought   the  calculation  had  been                                                                    
distorted.  He  had  prepared  a   slide  that  had  greater                                                                    
clarity.                                                                                                                        
                                                                                                                                
Mr. Cline  addressed a slide entitled  "Response on Comments                                                                    
on Fiscal Comparison":                                                                                                          
                                                                                                                                
     ?  As  noted,  the   fiscal  comparison  slide  assumed                                                                    
     $70/bbl                                                                                                                    
     In order to  focus on the allocation  of income, rather                                                                    
     than revenue,  we removed  costs ($30/bbl)  focusing on                                                                    
     the $40/bbl of profit.                                                                                                     
              If  the   $40/bbl  income   is  used   as  the                                                                    
          denominator  rather than  $70/bbl, the  Government                                                                    
          Take  elements  appear  to  be  disproportionately                                                                    
          high (i.e. higher than the expected outcome).                                                                         
            In fact, the current royalty and tax                                                                                
          percentages were accurately reflected.                                                                                
            The following slide may help resolve the                                                                            
          confusion.                                                                                                            
     ? In  our work, we  also looked  at a $50/bbl  case and                                                                    
     this  can  be  extended  into  broader  price  scenario                                                                    
     analysis.                                                                                                                  
     ? If there are further  questions, we are happy to take                                                                    
     them.                                                                                                                      
                                                                                                                                
                                                                                                                                
Mr. Cline showed slide 3, "Fiscal Comparison":                                                                                  
                                                                                                                                
     ? Chart  illustrates general  $/bbl cash  breakdown and                                                                    
     tax burden for  select jurisdictions over an  oil & gas                                                                    
     development's life cycle                                                                                                   
            Assumes characteristics with new development in                                                                     
          Alaska, including constant cost environment                                                                           
     ? In reality each jurisdiction will have numerous                                                                          
     unique characteristics (development timeframe, cost                                                                        
    environment, infrastructure/market proximity etc.)                                                                          
     ? Alaska has relatively high government take compared                                                                      
     to select jurisdictions                                                                                                    
     ? Worth noting that some fiscal elements are                                                                               
     considered more burdensome than others                                                                                     
            Non-Income  based taxes, such as  royalty, carry                                                                    
          elevated risk  to investors because of  timing and                                                                    
          it  is  not  responsive  to  development/operating                                                                    
          costs                                                                                                                 
    ? Many other competing jurisdictions, particularly                                                                          
     non-western, implement asset level contracts                                                                               
            Popular for oil and gas dependent governments                                                                       
            Allows for fiscal terms specific to assets and                                                                      
          reflecting current economic conditions                                                                                
            Often contains various risk mitigations                                                                             
          including fiscal stabilization                                                                                        
                                                                                                                                
2:29:30 PM                                                                                                                    
                                                                                                                                
Senator Wielechowski asked who  Mr. Cline had consulted with                                                                    
in making changes to the slide.                                                                                                 
                                                                                                                                
Mr.  Cline  explained that  he  had  consulted with  Gaffney                                                                    
Clines   petroleum economist.  He noted  that the  slide had                                                                    
been previously presented for a  longer presentation, but it                                                                    
had  been  simplified  for  the   purposes  of  the  morning                                                                    
meeting.                                                                                                                        
                                                                                                                                
Senator Wielechowski was trying  to understand how the state                                                                    
was  shown   to  have  a  higher   production  and  property                                                                    
severance tax  than in  the Lower 48,  which he  assumed was                                                                    
dominated  by North  Dakota and  Texas. He  asked about  the                                                                    
standard production tax rate in North Dakota and Texas.                                                                         
                                                                                                                                
Mr. Cline  did not have the  answer but offered to  get back                                                                    
to the committee with the information.                                                                                          
                                                                                                                                
Senator  Wielechowski asked  about royalties.  He had  heard                                                                    
over  the years  that  the standard  royalty  rate in  North                                                                    
Dakota  and  Texas  was  25 percent.  He  was  curious  what                                                                    
royalty rate was being reflected  in the slide for the Lower                                                                    
48.                                                                                                                             
                                                                                                                                
Co-Chair Stedman  suggested that  the numerics of  the slide                                                                    
be presented in dollars or percentages for greater clarity.                                                                     
                                                                                                                                
Senator  Wielechowski  wanted  to  see  an  apples-to-apples                                                                    
comparison  and  agreed  with Co-Chair  Stedmas    idea.  He                                                                    
thought Mr.  Cline had suggested that  Alaska had relatively                                                                    
high government  take compared  to select  jurisdictions. He                                                                    
had seen many  charts over the years and had  seen charts of                                                                    
other  jurisdictions similar  to Norway.  He asked  if there                                                                    
were  other large  basins that  had net  profit tax  systems                                                                    
that  had higher  taxes than  Alaska, and  if Gaffney  Cline                                                                    
could provide a chart with the information.                                                                                     
                                                                                                                                
Co-Chair  Stedman asked  if Senator  Wielechowski wanted  to                                                                    
get information for jurisdictions over the whole planet.                                                                        
                                                                                                                                
Senator  Wielechowski clarified  that he  wanted information                                                                    
pertaining to  major producers. He thought  Alaska was often                                                                    
compared  to Norway.  He wondered  at the  comparisons being                                                                    
made when there were other  jurisdictions with a much higher                                                                    
government take.                                                                                                                
                                                                                                                                
Mr.  Cline  agreed that  Gaffney  Cline  could provide  more                                                                    
benchmarks.   He  explained   that   the   firm  chose   the                                                                    
jurisdictions  thinking  they   were  good  and  instructive                                                                    
examples to  explain the  issue. He  qualified that  some of                                                                    
the benchmarks were contractual.                                                                                                
                                                                                                                                
2:33:28 PM                                                                                                                    
                                                                                                                                
Co-Chair Bishop asked  if all oil was equal.  He wondered if                                                                    
oil in Alberta  was worth the same per barrel  as the oil in                                                                    
Alaska. He  mentioned oil sands  production and asked  if it                                                                    
traded on par with Alaska North Slope (ANS) oil.                                                                                
                                                                                                                                
Mr. Cline stated  that the firm had normalized  the costs as                                                                    
if  they were  the same  in  all jurisdictions  so that  the                                                                    
fiscal elements  could be benchmarked  apples to  apples. He                                                                    
affirmed that an oil sands  project had different costs than                                                                    
other  projects. To  illustrate  the  relative position  and                                                                    
fiscal terms, it helped to normalize the cost.                                                                                  
                                                                                                                                
Co-Chair  Stedman discussed  different subsurface  ownership                                                                    
and mentioned  struggles with whether there  were some areas                                                                    
that  could be  developed  with  substantial production  but                                                                    
without a  share of all  the portions. He thought  there was                                                                    
concern  that  if  there  was  a  policy  to  stimulate  oil                                                                    
production, funds would be used  that would not come back to                                                                    
the state.                                                                                                                      
                                                                                                                                
2:36:04 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  asked about  the issue  of life  cycle. He                                                                    
assumed  the   slide  showed  the   life  cycle  of   a  new                                                                    
development.                                                                                                                    
                                                                                                                                
Mr. Cline answered affirmatively.                                                                                               
                                                                                                                                
Co-Chair Stedman  shared concerns related to  the government                                                                    
take and sharing relations for  legacy fields. He referenced                                                                    
an earlier discussion and query  about the components across                                                                    
different  price  ranges.   He  discussed  new  developments                                                                    
versus  old  developments,  and   the  blended  policy  that                                                                    
affected all companies.                                                                                                         
                                                                                                                                
Mr. Cline affirmed  that there was nuance  in the difference                                                                    
between legacy  assets and existing assets.  He relayed that                                                                    
Gaffney Clines  focus had been  the fiscal comparison in the                                                                    
context  of  new developments,  to  try  and understand  the                                                                    
relative  competitiveness for  Alaska for  new projects.  He                                                                    
agreed that  Gaffney Cline could  look at legacy  assets and                                                                    
figure out the best way to benchmark them.                                                                                      
                                                                                                                                
Co-Chair  Stedman thought  much of  the work  had been  done                                                                    
before and only needed to be updated.                                                                                           
                                                                                                                                
Senator  Wielechowski  commented  that the  numbers  on  the                                                                    
"Fiscal Comparison" slide did not  add up for Alaska nor for                                                                    
the Lower 48.                                                                                                                   
                                                                                                                                
Co-Chair  Stedman thought  the  numbers  would be  clarified                                                                    
with more work with Gaffney Cline.                                                                                              
                                                                                                                                
Senator  von Imhof  thought there  was  an additional  slide                                                                    
that could address Senator Wielechowski's concerns.                                                                             
                                                                                                                                
Mr. Cline  showed slide 4,  "Overview of Current  Alaska Tax                                                                    
Burden":                                                                                                                        
                                                                                                                                
    The overview of indicative range of Alaska Oil and                                                                          
     Gas tax burden highlighted to the right:                                                                                   
     ? Royalty                                                                                                                  
       Illustration assumes 12.5% for Existing Assets & the                                                                     
     higher                                                                                                                     
     16.67% rate for "New Developments"                                                                                         
       Property Tax                                                                                                             
       2% of carried asset value                                                                                                
     ? Property Tax                                                                                                             
       35% of field profit less tax credits, subject to 4%                                                                      
     minimum                                                                                                                    
     ? State Tax                                                                                                                
       9.4% State Income Tax                                                                                                    
     ? Federal Tax                                                                                                              
       21% Federal Income Tax                                                                                                   
                                                                                                                                
Mr. Cline addressed the graph  on slide 4, 'Indicative Value                                                                    
per  Barrel Breakdown  at $70/bbl.'  He  explained that  the                                                                    
slide  showed   what  data  was  used   in  Gaffney  Clines                                                                     
analysis. The  slide showed a  breakdown of taxes at  an oil                                                                    
price of  $70/bbl, for new  developments and  legacy assets.                                                                    
He noted that the  large difference was capital expenditures                                                                    
and property tax.                                                                                                               
                                                                                                                                
Co-Chair Stedman asked  if the slide still  addressed a life                                                                    
cycle. He wondered how the  firm addressed the life cycle on                                                                    
the new development versus the other.                                                                                           
                                                                                                                                
Mr. Cline  thought the slide  addressed the life cycle  of a                                                                    
new development,  but he  needed to  check how  the existing                                                                    
legacy assets were addressed.                                                                                                   
                                                                                                                                
Co-Chair  Stedman  appreciated   the  clarification  of  the                                                                    
slides offered by Gaffney Cline.                                                                                                
                                                                                                                                
2:40:29 PM                                                                                                                    
                                                                                                                                
Mr.  Cline  addressed   slide  20,  "Alaska  Competitiveness                                                                    
Globally":                                                                                                                      
                                                                                                                                
     ? Alaska's upstream investment has fared reasonably in                                                                     
     line with global trends:                                                                                                   
            Some major Alaska  operators, such as Conoco and                                                                    
          Hillcorp, have  clearly increased  Alaska exposure                                                                    
          as  a  percentage  of  total  capital  budgets  in                                                                    
          recent years.                                                                                                         
            Exploration has been healthy in last 10-12                                                                          
          years.                                                                                                                
     ? A key challenge for Alaska and the companies will be                                                                     
     maturing discoveries into developments.                                                                                    
     ? The projects take years to progress to the                                                                               
     investment decision and years from that decision to                                                                        
     reach production.                                                                                                          
     ? Alaska is entering a critical phase that will be                                                                         
     decisive in long-term production trends.                                                                                   
                                                                                                                                
Mr. Cline summarized  that Alaska had fared  fairly well for                                                                    
an investment  destination for oil  and gas. He  discussed a                                                                    
number  of factors  that contributed  to the  critical phase                                                                    
the  state  was in  before  opportunity  began to  diminish,                                                                    
including  the  time  taken  for   projects  to  mature  and                                                                    
contemporary energy transitions.                                                                                                
                                                                                                                                
Senator  Wielechowski thought  Mr. Cline  was familiar  with                                                                    
discussions  about oil  taxes that  the state  had over  the                                                                    
years. He referenced  SB 21, oil and  gas legislation passed                                                                    
in 2013, and  the promise that the state  would receive more                                                                    
jobs,  production, investment,  and revenue.  He noted  that                                                                    
the  promises  had  not  materialized,   nor  had  the  same                                                                    
promises which  were made during an  initiative the previous                                                                    
year. He cited a decline in  jobs and investment, as well as                                                                    
a diminished  PFD. He asked how  other jurisdictions handled                                                                    
the  situation  when  the industry  made  promises  for  tax                                                                    
breaks which it did not live up to.                                                                                             
                                                                                                                                
Mr.  Cline  thought   Senator  Wielechowski's  question  was                                                                    
difficult  to  answer,  because   it  presupposed  that  the                                                                    
promises made from a tax  policy would necessarily lead to a                                                                    
certain  result.  He  thought  oil and  gas  companies  were                                                                    
looking at  more than  just tax  policy. He  mentioned other                                                                    
issues  such as  the regulatory  environment, perception  of                                                                    
fiscal stability,  and the market environment  as opposed to                                                                    
having a laser focus on tax policy.                                                                                             
                                                                                                                                
2:46:32 PM                                                                                                                    
                                                                                                                                
Senator  Wielechowski emphasized  that  tax  policy was  the                                                                    
only variable the state could change.                                                                                           
                                                                                                                                
Co-Chair Stedman asked to stay on topic.                                                                                        
                                                                                                                                
Senator  von  Imhof  noted  that  the  committee  had  asked                                                                    
Gaffney Cline to  do an analysis of the costs  of the global                                                                    
supply and  demand, energy transition, AK  LNG, environment,                                                                    
the states   competitiveness, and the states   tax take. She                                                                    
thought  that Gaffney  Cline  was  addressing the  requested                                                                    
topics.                                                                                                                         
                                                                                                                                
Co-Chair  Stedman explained  that  the  presentation was  to                                                                    
address the  states  global position.  He agreed  that there                                                                    
was much more  detail to address in some  areas, which could                                                                    
come at a later date.                                                                                                           
                                                                                                                                
Mr.  Cline  continued to  address  a  presentation from  the                                                                    
earlier  meeting, "State  of Alaska  - Alaska's  Competitive                                                                    
Position" (copy on  file). He showed slide 21,  " Alaska Oil                                                                    
Moving Forward."                                                                                                                
                                                                                                                                
Mr.  Cline   advanced  to  slide  22,   "Alaska  Development                                                                    
Scenarios":                                                                                                                     
                                                                                                                                
     ?   There   is   strong   potential   for   major   new                                                                    
     developments,   as   well    as   smaller   incremental                                                                    
     developments    built    around   existing    or    new                                                                    
     infrastructure hubs.                                                                                                       
     ?  To  understand  the potential  contribution  of  new                                                                    
     investments to  Alaska state revenues and  to gauge the                                                                    
     downside  risk   if  new  investments   are  curtailed,                                                                    
     indicative profiles have  been developed representative                                                                    
     of Alaska new investment opportunities:                                                                                    
            A significant new development justifying a new                                                                      
          infrastructure hub, similar to the Pikka or                                                                           
          Willow developments.                                                                                                  
            A smaller incremental development tying into an                                                                     
          existing    infrastructure    or    infrastructure                                                                    
          associated with a new development.                                                                                    
     ?  The evaluation  summarizes  the estimated  'investor                                                                    
     return'  and   generated  'state  revenue'   under  the                                                                    
     current and  proposed tax  changes as  well as  under a                                                                    
     variety of sensitivities.                                                                                                  
                                                                                                                                
Mr.  Cline  recounted  that  Gaffney  Cline  had  considered                                                                    
issues  of   importance,  including  projects   to  increase                                                                    
production.  The  firm had  done  an  analysis of  different                                                                    
kinds of  developments to understand  what the  impact might                                                                    
be on state revenue.                                                                                                            
                                                                                                                                
2:48:54 PM                                                                                                                    
                                                                                                                                
Mr. Cline spoke to slide 23, "Pikka Scale Development":                                                                         
                                                                                                                                
     ?   Material   new   developments  could   create   new                                                                    
     infrastructure hubs with numerous benefits                                                                                 
            Development generates material new state                                                                            
          revenue, US$6-7 Billion over 20 years.                                                                                
              Enables    numerous   additional   incremental                                                                    
          developments (in this example Pikka Phase 2 and                                                                       
          Quokka) detailed on following slide.                                                                                  
            Potentially extend TAPS infrastructure life.                                                                        
                                                                                                                                
     ? However, developments are more challenging due to:                                                                       
            Significant development risks, capital and time                                                                     
          during the development period.                                                                                        
            Up to 20-year time horizon to realize expected                                                                      
          economic returns means perceptions of market,                                                                         
          fiscal and regulatory risk heightened.                                                                                
                                                                                                                                
Mr. Cline explained that he  had done two different types of                                                                    
analysis, one of which was  a major material new development                                                                    
analysis, which  was based on a  Pikka-sized development. He                                                                    
emphasized  the importance  of  the  projects that  promoted                                                                    
other incremental developments.                                                                                                 
                                                                                                                                
Co-Chair Stedman  explained that the committee  had seen the                                                                    
slides  many times  over the  years. He  asked Mr.  Cline to                                                                    
address the chart on slide 23  and discuss the time value of                                                                    
money and  tax structures that  could delay or  advance cash                                                                    
flow over time.                                                                                                                 
                                                                                                                                
Mr.  Cline looked  at the  bar graph  on slide  23, 'Project                                                                    
Cash  Flows' and  observed  the red  curve  going up,  which                                                                    
showed  that the  initial years  of the  projects had  large                                                                    
investments early  on. The capital investments  grew smaller                                                                    
over time,  and after the  fifth or sixth year  the projects                                                                    
started  to produce  a return  on  investment. He  continued                                                                    
that during the  same period, the tax  receipts should start                                                                    
to increase for  the state, and over time  the project would                                                                    
plateau  and  there would  be  a  profitable and  productive                                                                    
period  for  the state  and  the  company. A  decline  would                                                                    
follow. He  thought the  graph was a  classic profile  for a                                                                    
conventional development.                                                                                                       
                                                                                                                                
Co-Chair Stedman  mentioned the  Permian Basin and  asked if                                                                    
he could expect to see the same scenario.                                                                                       
                                                                                                                                
Mr. Cline  explained that unconventional developments  had a                                                                    
different  profile  and did  not  have  the same  investment                                                                    
curve. He noted  that such developments were  high cost, but                                                                    
once drilling  programs were  going forward,  wells produced                                                                    
at a high level for a  shorter time, while more wells had to                                                                    
be drilled going forward.                                                                                                       
                                                                                                                                
Co-Chair  Stedman compared  the unconventional  developments                                                                    
to a factory approach.                                                                                                          
                                                                                                                                
Mr. Cline agreed.                                                                                                               
                                                                                                                                
2:54:26 PM                                                                                                                    
                                                                                                                                
Senator Wielechowski  considered the upfront costs  shown on                                                                    
the graph over years  1, 2, 3, and 4. He  asked if the costs                                                                    
assumed  the  investment  was being  done  by  an  incumbent                                                                    
producer that  would be  able to  obtain net  operating loss                                                                    
credits during the years.                                                                                                       
                                                                                                                                
Mr. Cline  was not certain  how the states  tax  code worked                                                                    
under the  scenario and restated  that the chart  showed up-                                                                    
front capital investments.                                                                                                      
                                                                                                                                
Co-Chair Stedman  wanted to rephrase  Senator Wielechowski's                                                                    
question. He thought Senator Wielechowski  was asking if the                                                                    
expenditures in the first four  years could be taken against                                                                    
current production  to lower  the tax  rate. He  thought the                                                                    
question was beyond the scope  of the discussion. He thought                                                                    
the slide  showed a new  entrant to the fields,  which would                                                                    
be different than  a company that had been in  the state for                                                                    
20 years.                                                                                                                       
                                                                                                                                
Senator  Wielechowski  affirmed  that Co-Chair  Stedman  had                                                                    
summarized his  question correctly. He was  interested about                                                                    
the  numbers  for  existing producers.  He  thought  it  was                                                                    
interesting to  note that the  state take was shown  with an                                                                    
accounting for  future value loss, where  the contractor was                                                                    
discounted  for future  loss. Further,  the loss  write-offs                                                                    
were not  included in  the numbers.  He thought  the factors                                                                    
would  have a  significant  impact on  the  numbers for  the                                                                    
state and the contractor.                                                                                                       
                                                                                                                                
2:57:25 PM                                                                                                                    
                                                                                                                                
Mr. Cline referenced slide 24, "Incremental Developments":                                                                      
                                                                                                                                
     ?   Incremental   developments    tie   into   existing                                                                    
     infrastructure and benefit from shorter development                                                                        
     periods.                                                                                                                   
     ? The returns on the assumed incremental development                                                                       
     are attractive under current prices.                                                                                       
     ? Each development of this size could add over US$150                                                                      
     MM+ per year in peak years and US$1.5 Bn of total                                                                          
     state revenue.                                                                                                             
                                                                                                                                
Mr.  Cline relayed  that incremental  developments could  be                                                                    
extremely valuable  and could reach economic  potential more                                                                    
quickly.  In  looking  at incremental  development,  he  had                                                                    
estimated about  30,000 barrels per day  at peak production,                                                                    
which would  deliver significant additional revenues  to the                                                                    
state.  He  thought  the hub  developments  and  incremental                                                                    
developments had  real potential  to sustain  state revenues                                                                    
for oil and gas.                                                                                                                
                                                                                                                                
Mr. Cline turned to slide 25, "Concluding Remarks":                                                                             
                                                                                                                                
     ? Alaska oil & gas  faces many challenges going forward                                                                    
     but it remains an attractive oil & gas province.                                                                           
     ? New developments are required  to offset the historic                                                                    
     downward trend in production and revenues.                                                                                 
          ? Without new developments there is also a risk                                                                       
          of reaching TAPS minimum production threshold                                                                         
          ? New developments will generate jobs and                                                                             
         economic activity throughout value chain                                                                               
     ? New  developments will be costly  and challenging and                                                                    
     operators,  investors   and  lenders   need  regulatory                                                                    
     visibility  and fiscal  stability to  support financial                                                                    
     decisions for these long-term projects.                                                                                    
     ?  Giant   projects  are  unlikely  but   new  material                                                                    
     developments   with  numerous   smaller  tie-backs   to                                                                    
     infrastructure  hubs  offer  a path  to  reversing  the                                                                    
     decline.                                                                                                                   
     ? The  global competition for new  investment is fierce                                                                    
     and  maintaining an  attractive fiscal,  regulatory and                                                                    
     administrative environment will be key.                                                                                    
                                                                                                                                
Senator Wielechowski  asked about Mr.  Cline's understanding                                                                    
of the TAPS minimum production threshold.                                                                                       
                                                                                                                                
Mr. Cline had heard the  figures 250,000 to 300,000 (barrels                                                                    
per  day) and  thought  the operator  had  made progress  in                                                                    
bringing the  minimum threshold down.  He clarified  that he                                                                    
was commenting on what he had read in the public domain.                                                                        
                                                                                                                                
Co-Chair  Stedman  commented   on  keeping  TAPS  profitably                                                                    
operational.                                                                                                                    
                                                                                                                                
3:01:00 PM                                                                                                                    
                                                                                                                                
Mr. Cline displayed slide 27, "Tax Change Implications":                                                                        
                                                                                                                                
     Upside                                                                                                                     
     ? Capturing  additional rents from  existing production                                                                    
     with low risk of discouraging activity.                                                                                    
       Capturing additional rents  from new developments but                                                                    
     with higher risk (see downside)                                                                                            
     ?   Securing   State   revenues   to   support   public                                                                    
     initiatives,    including    investment    in    energy                                                                    
     transition.                                                                                                                
                                                                                                                                
     Downside                                                                                                                   
     ?  Discouraging new  developments,  resulting in  lower                                                                    
     long term State Revenue and lower economic activity.                                                                       
     ? Discouraging investments that  could prolong the life                                                                    
     of mature fields.                                                                                                          
     ?  Compromising TAPS  viability  if production  decline                                                                    
     continues due to lack of investment.                                                                                       
     ? Discouraging  new exploration  which may  prevent the                                                                    
     discovery of major new hydrocarbon resources.                                                                              
                                                                                                                                
Co-Chair  Stedman reminded  that  Gaffney Cline  had been  a                                                                    
consultant  for  the legislature  for  a  decade or  so  and                                                                    
helped  the legislature  through  different policy  analyses                                                                    
and  changes.   He  explained  that  the   presentation  was                                                                    
requested in order to give  an overview of the worldwide oil                                                                    
industry and the  natural gas market, since the  state had a                                                                    
potential to get gas fields  to market. The presentation was                                                                    
not   intended  to   be  an   in-depth  comparison   of  the                                                                    
intricacies  of  new fields  versus  old  fields, and  other                                                                    
nuances of severance tax.                                                                                                       
                                                                                                                                
Co-Chair  Stedman  thanked Gaffney  Cline  for  the work  in                                                                    
putting  together  the  presentation, and  its  patience  in                                                                    
answering the members questions.                                                                                                
                                                                                                                                
Co-Chair  Stedman discussed  the  agenda  for the  following                                                                    
day.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
3:05:46 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:05 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
EO 121 Summary of New and Reclassified Positions 2.18.22.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 Legislative Legal Memo 02.14.2022.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 Vehicle to Achieve the Split of DHSS Summary of Changes.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 Transmittal Letter Sponsor Summary 1.17.2022.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 Transition Plan 2.6.2022.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 Stakeholder Meetings Lists 3.1.2022.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 Sectional Analysis.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 Organizational Letters of Support 3.1.22.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 LAW Response to 2.14.22 Leg Legal Memo.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
EO 121 DHSS Reorganization Presentation for SFIN 3.3.22 FINAL.pdf SFIN 3/3/2022 1:00:00 PM
EO 121
E0 121 Metrics and Measures 2.25.2022.pdf SFIN 3/3/2022 1:00:00 PM
EO 121