Legislature(2023 - 2024)SENATE FINANCE 532
02/07/2023 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Fiscal Scenarios: Legislative Finance Division | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
February 7, 2023
9:01 a.m.
9:01:32 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Jesse Kiehl
Senator Kelly Merrick
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Alexei Painter, Director, Legislative Finance Division;
Conor Bell, Fiscal Analyst, Legislative Division.
SUMMARY
^FISCAL SCENARIOS: LEGISLATIVE FINANCE DIVISION
9:04:51 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
(LFD) addressed the letter dated February 1, 2023 from the
LFD, which is a response to a question from Co-Chair Olson
(copy on file):
Senator Olson asked about the number of people
affected by tuberculosis and congenital syphilis, and
whether those rates have increased or decreased over
the past few years.
Congenital syphilis:
The Department of Health, Division of Public Health,
Section of Epidemiology recently released CY2021 data
for Alaskans diagnosed with syphilis. In CY2021, 447
Alaskans were diagnosed with syphilis and 5 of those
were classified as congenital cases. The total number
of new cases in CY2021 represents a 24 percent
increase over CY2020.
The Section of Epidemiology first identified a
syphilis outbreak in Alaska in CY2018, when a total of
114 cases were reported and none were identified as
congenital. In CY2019, a total of 242 new cases (none
congenital) were reported in Alaska an increase of
112 percent over CY2018.
In CY2020, 361 new cases (49 percent increase over
CY2019) were identified and 8 of those cases were
classified as congenital. While the most recent data
point for congenital syphilis is lower than the prior
year, the total number of cases continues to rise.
Tuberculosis:
The Department of Health, Division of Public Health,
Section of Epidemiology recently released the
provisional tuberculosis (TB) case counts for CY2022,
and 96 Alaskans were diagnosed with active TB. The
CY2019-CY2021 case counts had remained steady at 58
active cases per year, so the CY2022 figure represents
a 66 percent increase over the prior three-year
period.
The Northern and Southwest regions of Alaska have
significantly higher rates of incidence than other
regions of the state, and the Alaska Native population
has consistently borne a disproportionate number of TB
cases as a result.
Co-Chair Olson queried the distribution across the state of
those with congenital syphilis.
Mr. Painter agreed to provide that information.
Co-Chair Stedman noted the deaths from tuberculosis.
Senator Bishop queried the number of the active and
inactive cases of tuberculosis.
Mr. Painter agreed to provide that information.
9:08:26 AM
CONOR BELL, FISCAL ANALYST, LEGISLATIVE DIVISION,
introduced himself.
Mr. Painter discussed the presentation, "Fiscal Modeling:
Senate; Finance Committee; Scenarios" (copy on file). He
addressed slide 2, "Outline":
• Review of LFD Modeling Baseline Assumptions
• Review of LFD Probabilistic Model
• Evaluating Risk: Earnings Reserve Sufficiency and
Reserve Targets
• Senate Finance Committee Modeling Scenarios
• Fiscal Models Using Committee Assumptions
9:09:04 AM
Mr. Painter pointed to slide 3, "Short Fiscal Summary
Governor's Budget with Supplementals." He noted that when
the governor's budget had been presented the week prior,
there was not an inclusion of the supplemental figure.
Co-Chair Stedman queried the definition of a "pretransfer
surplus."
Mr. Painter replied that that the pretransfer surplus, or
deficit as it pertained to the presentation, was the true
fiscal deficit of the state before transfers were made
between accounts and sources.
Mr. Painter highlighted slide 4, "Review of LFD Modeling
Baseline":
• Legislative Finance's fiscal model is designed to
show policy makers the longer-term impact of fiscal
policy decisions.
• The baseline assumptions are essentially that
current (FY23) budget levels are maintained, adjusted
for inflation. Policy changes are then applied against
that baseline.
• Our default is to assume that statutory formulas
will be followed, including the PFD formula.
Mr. Painter discussed slide 5, "Review of LFD Modeling
Baseline (cont.)":
Revenue Assumptions
• LFD's baseline revenue assumptions are the
Department of Revenue's Fall Revenue Forecast.
This assumes $81 oil in FY24, following futures
market thereafter.
DNR oil production forecast projects that
Alaska North Slope production will increase from
503.7 thousand barrels per day in FY24 to 543.3
thousand barrels per day in FY32.
• For the Permanent Fund, we use Callan's return
assumption of 7.00 percent total return in FY23 and
7.05 percent thereafter.
9:14:34 AM
Senator Wilson felt that the 7 percent may be slightly
high, and wondered whether Callan had updated their
projections.
Mr. Painter replied that Callan updated for the Permanent
Fund once a year in July, so there has been no update since
then.
Co-Chair Stedman stated that Callan and the Permanent Fund
would present to the committee.
Mr. Painter pointed to slide 6, "Review of LFD Modeling
Baseline (cont.)":
Spending Assumptions
• For agency operations, our model assumes that
the FY24 Adjusted Base grows with inflation (2.50
percent), including in FY24.
• For statewide items, the baseline assumes that
all items are funded to their statutory levels in
FY24 and beyond.
This includes School Debt Reimbursement,
the REAA Fund, Community Assistance, oil and
gas tax credits.
• For the capital budget, we assume that the FY23
budget grows with inflation (2.50 percent).
• For supplementals we assume $50.0 million per
year. This is based on the average amount of
supplemental appropriations minus lapsing funds
each year.
Mr. Painter addressed slide 7, "LFD Modeling Baseline
Statutory PFD." He remarked that the slide showed the
modeling baseline from the Legislative Finance Division
(LFD). He explained the details of the modeling.
9:20:14 AM
Co-Chair Stedman surmised that there was a linear
expectation of the return in terms of the financial markets
on the Permanent Fund.
Mr. Painter agreed.
Co-Chair Hoffman queried the delta between the 5 percent
draw and the 7.04 percent draw.
Mr. Painter replied that in FY 27 it was approximately that
deficit number of $1.5 billion.
Mr. Painter discussed slide 8, "Governor's 10-Year Plan No
New Revenue, Statutory PFD."
Co-Chair Stedman felt that the presentation referred to the
inputs and not the numbers behind the governor's plan.
Mr. Painter agreed.
Senator Kiehl queried the assumption for new school debt.
Mr. Painter replied that it was approximately $7.5 million
per year.
9:25:44 AM
Senator Bishop commented that there may be some more
federal funding that would require a GF match to utilize
those funds.
Co-Chair Stedman remarked that a subcomponent of the
modeling was deferred maintenance.
Mr. Bell pointed to slide 9, "Probabilistic Modeling":
• LFD has two versions of the fiscal model: a linear
model which assumes that revenue matches DOR's
forecast, and a probabilistic model that shows the
impact of revenue volatility
• The probabilistic model allows for variation in
three variables:
Oil prices (using a range centered around DOR's
forecast)
Oil production (using the range between DNR's
"high" and "low" production forecast)
Permanent Fund investment returns (using the
ranges developed by Callan for APFC)
• This leaves out potential variation in non-oil
revenues and inflation
Mr. Bell looked at slide 10, "Example: 25th Percentile
Result":
• Example of a single case, for which 25 percent of
total cases see greater overall deficits.
• Example case has average oil price of $67.20 and
average Permanent Fund return of 7.4 percent.
9:30:59 AM
Co-Chair Stedman noted that the committee would focus on
ensuring that the 10-year plan required the years in
between to not go broke.
Mr. Painter pointed out that the second half of the decade
looked significantly more negative than the first half.
Mr. Bell pointed to slide 11, "Example: 50th Percentile
Result":
• Example of a single case, for which 50 percent of
total cases see greater overall deficits.
• Example case has average oil price of $75.85 and
average Permanent Fund return of 8.3 percent.
Mr. Bell addressed slide 12, "Example: 75th Percentile
Result":
• Example of a single case, for which 75 percent of
total cases see greater overall deficits.
• Example case has average oil price of $82.17 and
average Permanent Fund return of 5.0 percent.
Mr. Painter pointed to slide 13, "Evaluating Risk:
Permanent Fund Earnings Reserve Balance":
• Even without considering potential overdraws of the
POMV, there is a risk that the ERA will not have a
sufficient balance to pay out the POMV draw.
• LFD estimates a 46 percent risk that the ERA will
have an insufficient balance to pay out the full POMV
draw through FY32, based on Callan's projected
returns, assuming statutory inflation proofing based
on 2.5 percent inflation per year.
• If we assume the legislature will not inflation
proof if the balance is below the amount of the
following year's POMV draw, the risk is reduced to 38
percent.
• Note that these figures are based on the FY23
statutory net income meeting the $4.6 billion
projection. Through December, the actual statutory net
income was just $1.0 billion.
• Since the inflation amount in the model is fixed and
the fixed FY23 statutory net income figure is
optimistic, the true risk is higher than what the
model shows.
9:37:15 AM
Co-Chair Stedman queried the balance of the revenue from
the Permanent Fund relative to the tax structure. He
wondered whether one was more significant than the other.
Mr. Painter replied that they were expected to be about the
same amount.
Mr. Painter addressed slide 14, "Evaluating Risk: Permanent
Fund Earnings Reserve Balance." He stated that the slide
showed some of the chances that there would not be
sufficient amount without an overdraw.
Co-Chair Stedman queried the definition of the median.
Mr. Painter replied that the median was the middle case.
Co-Chair Stedman surmised that there were three averages.
Mr. Painter replied in the affirmative.
9:40:49 AM
Mr. Painter pointed to slide 15, "Evaluating Risk:
Constitutional Budget Reserve Target Balance":
• $500 million is needed for cashflow. How much is
needed as a shock absorber? Alaska does not have a
formal reserves target. OMB told this committee that
they are targeting $2 billion in the CBR.
• A challenge in Alaska is that we do not have a
structurally balanced budget to start with, so
reserves are needed not just as a shock absorber but
also to fill structural deficits.
• Many states do have formal reserves targets. For
example, Minnesota targets a reserves level such that
there is a 95 percent probability that the budget
could be funded for the next two years based on
projected revenue volatility.
• Applying the Minnesota rule to Alaska, based on a
hypothetical budget that balances at projected revenue
for FY24, Alaska would need a CBR balance of $3.5
billion.
Senator Merrick wondered whether the reserve targets were
in statutes of the states that have formal reserve targets.
Mr. Painter agreed to provide that information.
Co-Chair Stedman noted that there were different
conversations about targeted minimums, and hoped to clearly
define it.
9:46:36 AM
Senator Kiehl noted that the Minnesota state budget did not
come from a single commodity or stock market. He wondered
what their general fund spend would be in the state.
Mr. Painter agreed to provide that information.
Senator Bishop asked about the surplus within the state
government of Minnesota.
Mr. Painter addressed slide 16, "Evaluating Risk:
Constitutional Budget Reserve Target Balance":
Assumes FY24 and FY25 budgets balanced based on
revenue projected in DOR's Fall Revenue Sources Book,
ARPA revenue replacement and use of K-12 forward
funding. In FY24, this would require a budget $198
million lower than the Governor's proposal.
9:50:09 AM
Mr. Painter highlighted slide 17, "Obligations and Funding
Needs of the State of Alaska":
• This is not an exhaustive list. The total for these
items is about $13.1 billion":
• PERS/TRS Unfunded Liability: $7.1 billion
Payment plan: annual payments though FY39. FY24
payment is $140.3 million
General Obligation Bonds and State Supported Debt:
$1.1 billion
Payment plan: annual payments through FY41.
FY24 Governor's Budget includes $90.9 million UGF
• State Share of Municipal School Debt Service: $457.0
million
Payment plan: annual payments through FY39.
FY24 Governor's Budget includes $67.2 million GF
• Oil and Gas Tax Credits: $42.7 million
Payment plan: remaining payment in full is in
FY24 Governor's Budget.
• Deferred Maintenance: $2.2 billion
Payment plan: annual appropriations using
Alaska Capital Income Fund ($32.3 million in
FY24).
• State Share of School Major Maintenance and
Construction Lists: $413.5 million
Payment plan: FY24 Governor's Budget does not
include an appropriation for this. REAA fund can
also be used for some projects
• Rural Alaska Sanitation Funding Need (per DEC FY21
list): $1.8 billion
Payment plan: Village Safe Water capital
program. FY24 Governor's Budget includes $25.0
million UGF, $247.7 million all funds
Mr. Painter suggested that some of the bullet points
indicated "good news".
Senator Wilson asked about the $2 billion about rural
sanitation.
Mr. Painter responded to the question. He said that a
substantial dent could be made in the backlog.
Mr. Painter discussed slide 18, "Historical UGF Capital
Budgets and Oil Prices."
9:55:26 AM
Co-Chair Stedman noted that he would like to see a
comparison of GDP with the other northwest states over the
last decade.
Mr. Painter pointed to slide 19, "Senate Finance Committee
Scenarios":
Committee Chair asked for modeling with the following
assumptions:
• Governor's FY24 agency operations budget
• $400.0 million capital budget
• Fully funding statewide items
• Three PFD scenarios: current statute, 50
percent of POMV draw, 25 percent of POMV draw
Co-Chair Stedman understood that the analysis could be run
for any number that a committee member may request.
Mr. Bell looked at slide 20, "Senate Finance Baseline
Budget Statutory PFD."
Co-Chair Stedman stressed that the state would be under the
$2 billion target.
Mr. Painter agreed, and stated that the current CBR balance
was about $2.3 billion.
10:00:06 AM
Mr. Bell pointed to slide 21, "Senate Finance Budget
Statutory PFD."
Co-Chair Stedman felt that the slide was alarming.
Mr. Bell addressed slide 22, "Senate Finance Baseline
Budget 50 percent of POMV to PFD."
Mr. Bell discussed slide 23, "Senate Finance Budget 50
percent of POMV to PFD."
10:06:44 AM
Co-Chair Stedman wanted to see a sensitivity chart of the
CBR below $2 billion.
Mr. Bell pointed to slide 24, "Senate Finance Baseline
Budget 25 percent of POMV to PFD."
Co-Chair Hoffman queried the amount of the PFD at 25
percent POMV.
Mr. Painter replied that in FY 24 it would be $1300 per PFD
recipient.
Mr. Bell looked at slide 25, "Senate Finance Budget 25/75
PFD."
10:11:07 AM
Co-Chair Stedman expressed concern about the need to take
corrective action in the future.
Senator Kiehl asked about the trustee's recommendation for
the balance in the ERA as a multiple of the annual draw.
Mr. Painter replied that there was a recommendation of
keeping at least three times the draw.
Senator Kiehl felt that the risk level was relatively high.
Co-Chair Stedman stressed that there was no guarantee in
any scenario.
Co-Chair Olson noted that Minnesota had elected celebrities
to hold government positions.
10:15:01 AM
Co-Chair Stedman remarked that LFD had examined several
states.
ADJOURNMENT
10:16:39 AM
The meeting was adjourned at 10:16 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 020723 SFIN Response from 1-30-23 Meeting.pdf |
SFIN 2/7/2023 9:00:00 AM |
|
| 020723 SFIN Fiscal Modeling Presentation Feb 6.pdf |
SFIN 2/7/2023 9:00:00 AM |
|
| 020723 SFIN Response from 2-7-23 Meeting.pdf |
SFIN 2/7/2023 9:00:00 AM |