Legislature(2023 - 2024)SENATE FINANCE 532

01/24/2023 01:00 PM Senate FINANCE

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Audio Topic
01:00:17 PM Start
01:02:39 PM SB40
02:27:21 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
- Office of Management & Budget
                 SENATE FINANCE COMMITTEE                                                                                       
                     January 24, 2023                                                                                           
                         1:00 p.m.                                                                                              
1:00:17 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stedman called the Senate Finance Committee                                                                            
meeting to order at 1:00 p.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                                                                                                                
ALSO PRESENT                                                                                                                  
Neil Steininger, Director, Office of Management and Budget,                                                                     
Office of the Governor; Representative Dan Ortiz.                                                                               
SB 40     APPROP: OPERATING BUDGET/LOANS/FUND; SUPP                                                                             
          SB 40 was HEARD and HELD in committee for further                                                                     
SENATE BILL NO. 40                                                                                                            
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain   programs;    capitalizing   funds;   amending                                                                    
     appropriations;    making   reappropriations;    making                                                                    
     supplemental   appropriations;  making   appropriations                                                                    
     under art.  IX, sec.  17(c), Constitution of  the State                                                                    
     of Alaska, from the constitutional budget reserve                                                                          
     fund; and providing for an effective date."                                                                                
1:02:39 PM                                                                                                                    
NEIL STEININGER, DIRECTOR, OFFICE  OF MANAGEMENT AND BUDGET,                                                                    
OFFICE  OF  THE  GOVERNOR, He  discussed  the  presentation,                                                                    
"State of  Alaska; Office of  Management and  Budget; FY2024                                                                    
Governor's   Budget;   SB40,SB41,andSB42;  Senate   Finance;                                                                    
January 24,  2023" (copy on  file). He highlighted  slide 2,                                                                    
"Budget  Lookback."  He stated  that  the  slide showed  the                                                                    
history of  the enacted budgets since  Governor Dunleavy was                                                                    
first elected in  2019. He noted the  significant savings in                                                                    
statewide  items, which  were fixed  costs, that  dropped by                                                                    
nearly  50   percent.  He  noted  some   specific  areas  of                                                                    
investment. He  looked at  the revenue  side, and  noted the                                                                    
2.9 percent increase in traditional revenue.                                                                                    
1:05:13 PM                                                                                                                    
Senator Wilson looked at the  deficit line, and felt that it                                                                    
was higher than the Revenue Source Book.                                                                                        
Mr.  Steininger replied  that a  slide  in the  presentation                                                                    
would address that question. He  stated that there were some                                                                    
other  adjustments that  were not  included  in the  Revenue                                                                    
Sources Book.  He remarked that  there would  be information                                                                    
that was about sources of funds, and not just revenue.                                                                          
Co-Chair  Olson remarked  that the  governor had  proposed a                                                                    
fifty-fifty split  for the Permanent Fund  Dividend (PFD) in                                                                    
the past, but the current proposal  was for a larger PFD. He                                                                    
wondered  whether the  governor was  still advocating  for a                                                                    
fifty-fifty split.                                                                                                              
Mr.  Steininger  stated that  there  was  not a  fifty-fifty                                                                    
split  proposal, and  the current  budget was  following the                                                                    
existing statute.                                                                                                               
Co-Chair Olson  noted that the governor's  proposed dividend                                                                    
that was higher than the year prior.                                                                                            
Mr. Steininger  replied that  the current  budget had  a PFD                                                                    
draw from the savings accounts.  He stated that the proposed                                                                    
carbon bill  package was  expected to  fill the  funding gap                                                                    
for the PFD.                                                                                                                    
Co-Chair  Stedman  remarked  that the  carbon  revenue  bill                                                                    
package had not yet been submitted to the legislature.                                                                          
Mr. Steininger  agreed, and stated  that the bill  should be                                                                    
submitted shortly.                                                                                                              
Co-Chair  Olson felt  that  using the  CBR  was off  limits,                                                                    
because of  the difficulty  in getting a  three-quarter vote                                                                    
from the legislature.                                                                                                           
Mr.  Steininger  remarked  that  there  were  challenges  in                                                                    
getting the votes for use of  the CBR. He stated that he was                                                                    
willing to work  to get the appropriations  funded for state                                                                    
1:09:24 PM                                                                                                                    
Mr. Steininger  pointed to slide  3, "FY23 and FY24  Uses of                                                                    
Funds." He  stated that  the phrase   uses of  funds  better                                                                    
matches the  statutory wording, and better  reflects some of                                                                    
the revenue adjustments.                                                                                                        
Co-Chair  Olson  wondered  whether  the  funding  difference                                                                    
would be utilized in education funding.                                                                                         
Mr.   Steininger  wondered   whether   Co-Chair  Olson   was                                                                    
referring to the $4.8 million change.                                                                                           
Co-Chair  Olson  clarified  his question,  and  queried  the                                                                    
source of  the decline from  the current budget  proposal to                                                                    
the following years proposal.                                                                                                   
Mr. Steininger replied that the  capital budget in FY 23 was                                                                    
significantly  higher  than  previous years,  therefore  the                                                                    
proposal for  FY 24 was  primarily state match with  a small                                                                    
amount of discretionary capital.                                                                                                
1:15:19 PM                                                                                                                    
Co-Chair Stedman  recalled that  in the previous  year there                                                                    
was  some concern  by members  regarding not  funding health                                                                    
care. He asked for the proposed health care expenditures.                                                                       
Mr.  Steininger replied  that the  proposal  was the  amount                                                                    
offered by  the Alaska  Retirement Management  Board (ARMB).                                                                    
He  stated  that the  ARMB  chose  not  to fund  the  health                                                                    
contribution to  the retirement trust  in the  previous year                                                                    
because  the  health portion  of  the  trust was  funded  in                                                                    
excess of the need.                                                                                                             
Senator  Bishop  wondered how  much  would  be lost  in  the                                                                    
healthcare portion.                                                                                                             
Mr. Steininger agreed to provide that information.                                                                              
Co-Chair Stedman  shared that there would  be a presentation                                                                    
from the  ARMB to examine  the solvency, and  the management                                                                    
of  the  cash  flow.  He  queried  the  efforts  related  to                                                                    
community assistance.                                                                                                           
Mr.  Steininger   replied  that  the   community  assistance                                                                    
deposits and  fund distributes funds to  communities at one-                                                                    
third  of the  value of  the fund  on the  first day  of the                                                                    
fiscal year.                                                                                                                    
1:20:10 PM                                                                                                                    
Co-Chair Stedman remarked that  there should be a discussion                                                                    
on how to distribute the community assistance fund.                                                                             
Mr. Steininger discussed slide 4,  "FY23 and FY24 Sources of                                                                    
Funds." He  stated that  the slide  showed a  combination of                                                                    
current year revenue and uses  of saving or other sources of                                                                    
money available for appropriation.                                                                                              
Senator Kiehl  wondered why the proposed  $225,000 draw from                                                                    
the CBR did not show up as an appropriation.                                                                                    
Mr.  Steininger  replied  that it  was  a  technical  nuance                                                                    
within   the   reports.   He   explained   that   a   direct                                                                    
appropriation from  a savings account  was categorized  as a                                                                    
direct appropriation from savings.                                                                                              
Senator Kiehl felt that the  explanation made sense, but did                                                                    
not match with the title of the slide.                                                                                          
1:25:00 PM                                                                                                                    
Co-Chair  Stedman wondered  whether  the supplemental  shown                                                                    
was up to date.                                                                                                                 
Mr. Steininger felt that the number was optimistic.                                                                             
Co-Chair Stedman  asked that the information  be provided to                                                                    
the  committee  related  to  the  fire  safety  supplemental                                                                    
budget request.                                                                                                                 
Mr. Steininger agreed to provide that information.                                                                              
1:26:08 PM                                                                                                                    
Mr. Steininger addressed slide 5,  "Fiscal Summary   Savings                                                                    
     •Minimum savings balance of $500m required to maintain                                                                     
     cash flows.                                                                                                                
     •Savings balances assume status quo revenue.                                                                               
     •Based on unaudited financial data.                                                                                        
Co-Chair  Stedman felt  that there  needed to  be a  current                                                                    
 cushion   of $1.5  billion.  He wanted  to  have a  further                                                                    
analysis of the proper cushion.                                                                                                 
1:30:00 PM                                                                                                                    
Mr. Steininger replied that it  was not specifically for the                                                                    
Co-Chair  Stedman stressed  that he  was pointing  to normal                                                                    
oil price volatility,  and remarked that there  was not much                                                                    
1:34:25 PM                                                                                                                    
Mr.  Steininger pointed  to slide  6,  "Budget Challenges  -                                                                    
Revenue Volatility":                                                                                                            
     FY2023 revenue estimates when the Legislature passed                                                                       
     the budget were $2.2b higher than the day the Governor                                                                     
     released his initial budget proposal.                                                                                      
     From the day the Governor signed the FY2023 budget to                                                                      
     today revenue estimates have declined $1.8b                                                                                
Co-Chair Stedman recalled that the  year prior saw some high                                                                    
oil prices during the budget  process, but the committee was                                                                    
not  comfortable   focusing  on   those  high   oil  prices.                                                                    
Therefore, the  committee forward funded education  with the                                                                    
excess revenue.                                                                                                                 
1:39:54 PM                                                                                                                    
Mr.  Steininger  looked at  slide  7,  "Budget Challenges  -                                                                    
     •Most   departments   are  experiencing   significantly                                                                    
     greater vacancy than pre-pandemic levels.                                                                                  
     •Recruitments are taking longer  and are less likely to                                                                    
     result in a hire.                                                                                                          
     •Recruitment  incentives  being  used to  address  most                                                                    
     critical public needs.                                                                                                     
1:44:12 PM                                                                                                                    
Senator  Wilson queried  the  specific  issues and  analyses                                                                    
regarding the recruitment and retention.                                                                                        
Mr.  Steininger  replied  that   there  would  a  couple  of                                                                    
inclusions  in the  budget that  address  root cause  issues                                                                    
brought forward by commissioners.                                                                                               
Senator  Wilson  wanted  something   more  tangible  than  a                                                                    
response,  "hey we  are  working on  this."  He queried  the                                                                    
issue in retention.                                                                                                             
Co-Chair  Hoffman felt  that there  needed to  be a  greater                                                                    
examination of  the $70 million,  because those  funds could                                                                    
have been used to address the supplemental budget.                                                                              
1:50:24 PM                                                                                                                    
Senator  Bishop wanted  to  examine  the employment  vacancy                                                                    
factors within the budget.                                                                                                      
Mr.  Steininger  displayed  slide 8,  "Budget  Challenges                                                                       
Medicaid Match Rate":                                                                                                           
     •Under  the COVID  public  health  emergency the  state                                                                    
     received   an  enhanced   federal  medical   assistance                                                                    
     percentage match  (eFMAP) of  6.2 percent  resulting in                                                                    
     $17.3m in state savings per quarter.                                                                                       
     •Dec  29, 2022federal  government authorized  phase out                                                                    
     of the eFMAPover state FY23 and FY24                                                                                       
             percent April 1, 2023 Increases state share                                                                        
          $3.3m for Q4 FY23                                                                                                     
          •2.5 percent July 1, 2023 Increases state share                                                                       
          $10.3m for Q1 FY24                                                                                                    
          •1.5 percent October 1, 2023 Increases state                                                                          
          share $13m for Q2 FY24                                                                                                
             percent January 1, 2024 Increases state share                                                                      
          $34m for Q3 and Q4 FY24                                                                                               
     •Allows for eligibility redetermination                                                                                    
Senator Kiehl  noted that public assistance  was not looking                                                                    
to  hire any  eligibility  workers. He  asked  how much  the                                                                    
state would give  back in penalties for  missing the federal                                                                    
deadlines for processing.                                                                                                       
Mr. Steininger agreed to provide that information.                                                                              
Senator  Wilson  felt that  there  would  be a  supplemental                                                                    
request for the penalty  after auditing. He wondered whether                                                                    
the administration was not prepared to lose that funding.                                                                       
Mr.  Steininger   remarked  that  the  deadlines   had  been                                                                    
extended multiple times over the time period.                                                                                   
1:56:17 PM                                                                                                                    
Senator    Wilson   wondered    whether   eliminating    the                                                                    
redetermination process would result in cost savings.                                                                           
Mr. Steininger  replied that there  was current work  on the                                                                    
best way to make that estimation.                                                                                               
Co-Chair Stedman  stated that the  issue would  be addressed                                                                    
in the subcommittee process.                                                                                                    
Mr. Steininger  looked at slide 9,  "FY2024 Agency Operating                                                                    
UGF." He stated  that the slide showed the  relative size of                                                                    
the state agencies.                                                                                                             
Co-Chair Stedman  wondered whether the PFD  distribution was                                                                    
a general fund expenditure.                                                                                                     
Mr.  Steininger   replied  that   it  was  a   general  fund                                                                    
expenditure, but was not an agency expenditure.                                                                                 
Co-Chair  Stedman queried  the appropriation  number if  the                                                                    
PFD was on the graph.                                                                                                           
Mr. Steininger  replied that it would  be approximately $2.4                                                                    
Co-Chair  Stedman  requested  that the  Legislative  Finance                                                                    
Division  (LFD) include  the PFD  appropriation in  order to                                                                    
see the scale of the full budget proposal.                                                                                      
1:59:45 PM                                                                                                                    
Mr.  Steininger  pointed  to slide  10,  "FY24  Budget  High                                                                    
     •UGF Operating down almost 4 percent since FY19                                                                            
     •Full Statutory PFD                                                                                                        
     •Estimated $3,860 per person                                                                                               
       -12 Education                                                                                                            
          •Fully funded to the $5,960 base student                                                                              
          •Net UGF reduction of $1.7m                                                                                           
     •SLA 2022 HB114 Reads Act year two funding $6.4m                                                                           
     •Municipal and School Bond Debt/REAA fully funded                                                                          
     •PCE and Scholarships Fully Funded                                                                                         
Co-Chair   Stedman  felt   that  the   issue  of   community                                                                    
assistance  needed to  be sorted,  however they  were making                                                                    
Co-Chair  Hoffman thanked  the administration  for municipal                                                                    
and  school bond  debt funding  of the  Regional Educational                                                                    
Attendance Area (REAA).                                                                                                         
Mr.  Steininger  addressed  slide   11,  "FY24  Budget  High                                                                    
     •$5m for rural public professional housing                                                                                 
     •$5m to DCCED to market Alaska                                                                                             
     •Oil and Gas Tax Credits to be fully paid off -$42.7m                                                                      
          •Retires about $300m in debt                                                                                          
     •WWAMI -$2m capital investment and funding for 10                                                                          
     additional slots for medical students                                                                                      
     •Alaska Marine Highway System fully funded                                                                                 
     •Federal funding still uncertain                                                                                           
     •$4m for new cabins and park sanitation                                                                                    
     •$56.2m ($31.3m UGF) Net salary adjustments                                                                                
Senator Bishop hoped that there  could be some alliance with                                                                    
the  administration to  ensure that  there were  also nurses                                                                    
working with the doctors.                                                                                                       
2:05:19 PM                                                                                                                    
Senator  Wilson  requested a  summary  of  the cost  savings                                                                    
related to previous legislation, SB 55.                                                                                         
Mr. Steininger agreed to provide that information.                                                                              
Co-Chair  Stedman remarked  on the  current steel  and issue                                                                    
related to the ferry system.                                                                                                    
Mr.  Steininger  discussed  slide   12,  "FY24  Budget  High                                                                    
     •Statehood Defense Investments                                                                                             
          •$10m   in   funding    for   litigation,   expert                                                                    
          witnesses, and outside counsel                                                                                        
          •$1.3m in additional funding for DFG wildlife                                                                         
         •$1.5m in air quality monitoring for DEC                                                                               
     •$9.5m to address Congenital Syphilis and Tuberculosis                                                                     
    and provide health coverage to post-partum mothers                                                                          
      Food Security Investments                                                                                                 
          •$4.6m to DFG and DNR for fisheries and livestock                                                                     
          •$3m investment in power infrastructure for the                                                                       
          Delta farm region and co-op                                                                                           
          •$3m for produce processing at Point Mackenzie                                                                        
2:10:02 PM                                                                                                                    
Co-Chair  Olson   queried  the   summary  of  some   of  the                                                                    
Mr. Steininger agreed to provide that information.                                                                              
Co-Chair  Stedman felt  that the  department  of law  should                                                                    
present to the committee regarding the litigation.                                                                              
Senator Kiehl wondered whether there  was a plan to get past                                                                    
the history  of correctional industries with  no maintenance                                                                    
and eventually degradation  when the legislature potentially                                                                    
fails to appropriate funds. He  wondered whether there was a                                                                    
plan to avoid the degradation of facilities.                                                                                    
Mr.  Steininger  replied  that   he  would  discuss  general                                                                    
deferred  maintenance at  a future  meeting. He  stated that                                                                    
there  were efforts  with DOC  to make  sure that  there was                                                                    
better maintenance of their facilities.                                                                                         
Senator  Kiehl requested  a  discussion  of possible  carry-                                                                    
forward language in the future.                                                                                                 
Mr.  Steininger  highlighted  slide 13,  "FY24  Budget  High                                                                    
     •Public Safety Investments                                                                                                 
     •Fully fund filled trooper positions                                                                                       
     •30 new support positions                                                                                                  
          •Allow the troopers to focus on public safety                                                                         
     •$1.2m in assorted capital investment                                                                                      
          •Criminal justice IT systems                                                                                          
          •Trooper posts and training academy maintenance                                                                       
          and upgrades                                                                                                          
          •Forensic equipment refresh                                                                                           
          •Vessel and vehicle replacements                                                                                      
    •$2.5m investment in the Alaska State Defense Force                                                                         
     •$10m investment in University drone program                                                                               
     •$2m for the Business Enterprise Program                                                                                   
2:16:01 PM                                                                                                                    
Co-Chair  Hoffman stressed  that the  first line  of defense                                                                    
for people  in rural Alaska  were the Village  Public Safety                                                                    
Officers (VPSOs).  He wondered  how the budget  would affect                                                                    
the VPSO program.                                                                                                               
Mr. Steininger replied that the  in prior budgets the number                                                                    
of  VPSOs  was expanded,  and  one  of  the focuses  of  the                                                                    
current commissioner of  DPS was to provide a  more focus on                                                                    
the VPSO program to ensure its continued success.                                                                               
Mr. Steininger addressed slide 14, "10 Year Outlook - UGF":                                                                     
     With targeted new revenue 10-year outlook:                                                                                 
          •Maintains a healthy CBR balance                                                                                      
          •Provides a full statutory dividend                                                                                   
          •Provides for conservative growth in service                                                                          
     Without targeted new revenue 10-year outlook:                                                                              
          •Eliminates reserves by FY2027                                                                                        
          •Jeopardizes the PFD                                                                                                  
          •Requires   significant    reduction   in   public                                                                    
2:20:51 PM                                                                                                                    
Co-Chair  Stedman stressed  that without  new revenue  there                                                                    
was not  enough cash to  go to the  end of the  term without                                                                    
using the Permanent  Fund. He noted that  the projection was                                                                    
linear, however the price of  oil was not linear. He assumed                                                                    
that the Revenue Source Book  long-term projection price was                                                                    
used in  determining the forecast. He  remarked that without                                                                    
new  revenue,  and  understanding   the  volatility  of  oil                                                                    
prices,  the  state would  be  broke  after five  years.  He                                                                    
understood that  targets were necessary, and  was encouraged                                                                    
by the  acknowledgement that the  current situation  was not                                                                    
appropriate for the states fiscal health.                                                                                       
Co-Chair  Hoffman noted  the ten-year  projection showed  $9                                                                    
billion  projected  for collection.  He  looked  at line  4,                                                                    
which  was  the  capital   budget  merely  matching  federal                                                                    
programs.  He felt  that the  scenario would  result in  the                                                                    
capital  structure  of  the  state  crumbling.  He  did  not                                                                    
believe that  the Alaskan  people wanted  the infrastructure                                                                    
to fail.                                                                                                                        
2:25:31 PM                                                                                                                    
Senator  Merrick  expressed  concern about  the  significant                                                                    
potential supplemental  budget, as  well as  the significant                                                                    
draw from the CBR.                                                                                                              
Co-Chair  Stedman discussed  the  agenda  for the  following                                                                    
SB  40  was   HEARD  and  HELD  in   committee  for  further                                                                    
2:27:21 PM                                                                                                                    
The meeting was adjourned at 2:27 p.m.                                                                                          

Document Name Date/Time Subjects
012423 OMB Senate Finance Overview.pdf SFIN 1/24/2023 1:00:00 PM