Legislature(1999 - 2000)
01/13/2000 09:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
GENERAL SUBJECT:
Overview of Governor's Proposed FY'01 Budget
By David Teal, Director, Division of Legislative Finance
The following overview was taken in log note format. Tapes and
handouts will be on file with the Senate Finance Committee through the
21st Legislative Session, contact 465-4935. After the 21st
Legislative session they will be available through the Legislative
Library at 465-3808.
Time Meeting Convened: 9:05 AM
Tape(s): SFC-00 # 3 Side A
PRESENT:
Senator Adams
Senator Parnell
Senator P. Kelly
Senator Torgerson
Senator Green
Senator Donley
Senator Phillips
Senator Leman
Senator Wilken
ALSO PRESENT:
DAVID TEAL, DIRECTOR, DIVISION OF LEGISLATIVE FINANCE
LOG
SPEAKER
DISCUSSION
Tape SFC-00 #3 Side A
000
CO-CHAIR PARNELL
Introduction
14
DAVID TEAL
DIRECTOR, DIVISION
OF LEGISLATIVE
FINANCE
Handout: The Fiscal Year 2001 Budget:
legislative fiscal analyst overview of the
governor's request
I hope to tie together the information
presented by the Department of Revenue and
the Office of Management and Budget during
the last two Committee meetings.
Page 4: Fiscal Summary - FY00/FY01, Page 1,
far right-hand column: FY00 to FY01 General
Purpose [funds]
"General purpose" is what we usually call
general fund, Constitutional Budget Reserve
(CBR) and Investment Loss Trust Fund
(ILTF).
Revenue is down $236 million mainly due to
low oil prices, which are expected to fall
from $20.11 per barrel in FY00 to $18.26 in
FY01.
That accounts for about $220 million of the
decline.
The remainder of the decline, $17.4
million, is from Alaska Housing Finance
Corporation (AHFC) dividends.
The governor moved those AHFC dividends
from the "General Purpose" column over to
the "Other" column and from there they went
into the "Debt Retirement" column.
If we treated those dividends the same we
had last year the debt service would have
been $34 million instead of $19 million. It
would have affected the bottom line and
there would have been an increase in the
governor's budget of about $124 million
instead of $109 million that is shown on
the fiscal summary.
52
CO-CHAIR PARNELL
Please clarify the third line down of the
"General Purpose" column showing AHFC
receipts under the "Revenues" heading. The
column shows $17.4 million authorized in
FY00. Could you help us tract that through
the FY01 budget?
59
MR. TEAL
There is more debt service involved because
the "unspoken for" dividend this year from
AHFC is only about $15 million instead of
$17.4 million.
The governor took that amount and called it
"Other" funds and deposited them into the
"Debt Retirement" fund.
68
SENATOR DONLEY
Was last year the first time the
legislature treated Alaska Industrial
Development and Export Authority (AIDEA)
receipts in the "Other" column? How did we
treat those in FY99?
MR. TEAL
As general funds.
72
SENATOR DONLEY
So we did the smoke and mirrors trick and
put $18 million into the general fund from
"other" funds. Now the governor is moving
AHFC funds the same way.
76
MR. TEAL
The impact on the fiscal gap is neutral
because both the revenue and the
expenditures show in the other columns.
Debt service would decline and the apparent
general fund budget would increase.
It depends on whether you want to count the
increase in the governor's request as
either $109 million or $124 million.
I don't think we've ever treated everything
consistently from one year to the next. It
is difficult to get a real "apples to
apples" comparison from one budget year to
the next.
We now have dept service of $19.3 million
and the statewide totals of dept service
and fund transfers are an increase of $19
million.
The capital budget has increased about $18
million.
The operating budget is up about $72
million.
The combination of declining revenue of
$236 million and the $109 million increase
in spending increases the fiscal gap
approximately $350 million up to $837
million.
104
CO-CHAIR PARNELL
So the $836.7 million at the bottom of the
FY01 column is the amount that would have
to be drawn from the CBR if the governor's
budget were adopted?
Is the $109.4 million figure shown at the
bottom of the "FY00 to FY01 General
Purpose" column the amount Division of
Legislative Finance calculates as the
increase in spending? Are you also saying
that if AHFC funds were treated as "general
purpose" to general funds dollars the total
in the "FY00 to FY01 General Purpose"
column would be $124 million?
117
MR. TEAL
Correct.
Office of Management and Budget presented
their fiscal summary similar to this and
used a figure of $98 million.
The difference is partly based on the way
some of the fund source codes are treated.
Office of Management and Budget uses a term
called "fee supported services", which they
call "other funds" and we classify as
"general purpose".
There also could be some question on the
treatment of "power cost equalization" and
"Southeast Energy" funds, which we classify
as "general purpose" as well.
There are some minor differences in the
classification of funds in FY00, which
makes up about $100 - $110 million.
134
Page 5: Fiscal Summary - FY00/FY01, page 2
This shows information on permanent fund
and CBR cash flows.
This is a new chart and we hope to have
this accompany each bill that passes out of
the finance committees. This will allow us
all to track spending that accompanies a
bill.
141
CO-CHAIR PARNELL
Because the viewing audience does not have
the handout, please read the balances out
loud.
146
MR. TEAL
The balance at July 1, 1999 in the CBR was
$2.6 million.
There are settlements and earnings
contained in that figure of approximately
$150 million.
The $490.7 million CBR draw is taken off
the fiscal summary and shown on page 4.
We are starting the year with a balance of
about $2.29 billion.
There is a net loss after, the settlement
and interest earnings, of about $337
million.
Settlement income this year may be $150
million or it may be nothing. It is highly
variable and completely dependent upon how
negotiations go between the Attorney
General's office and the various parties.
Interest earnings may be close to $100
million.
Figuring in the $837 million withdraw
carried over from the previous page, the
ending balance on June 30, 2001 is
estimated at about $1.7 billion.
147
CO-CHAIR PARNELL
So if the governor's budget were enacted,
the balance of the CBR would be $1.7
billion on June 30, 2001.
148
MR. TEAL
Correct.
These are very close to the projections
presented by the Department of Revenue.
If this continues, the CBR will be gone by
2004.
176
CO-CHAIR PARNELL
Permanent fund balances?
MR. TEAL
The important thing to note in the
permanent fund is that there are
projections of negative earnings for the
unrealized gains in both FY00 and FY01.
The earnings reserve still goes up and that
balance is projected to be about $3.6
billion at the end of FY01. The total
permanent fund balance will be about $26.1
billion.
In previous fiscal summaries both permanent
fund dividends and inflation have appeared
in one column. However, there has been
about one billion dollars a year in
earnings of the permanent fund that have
not been appropriated for dividends or
inflation proofing. That excess earnings
has not appeared in the fiscal summary as
revenue.
If those earnings were placed in the
general fund there would be no more fiscal
gap. However, the vote on Sept. 14 showed
that the public does not want to spend
permanent fund earnings as general funds.
Therefore, this fiscal summary separates
these earnings to show as a cash flow
analysis. At the bottom of this page we
show the total authorization from the
fiscal summary of $4,807.5 million. Add
inflation proofing of $596 million and
permanent fund dividends of $1.2 billion
for a total budget of $6.62 billion.
207
Page 6: State Of Alaska Expenditures by
Category - FY00
This pie chart is very similar to the one
Office of Management and Budget showed. The
only difference is that ours breaks down
expenditures and theirs breaks down
revenue.
Page 7: Anticipated FY00 Supplemental
Requests
The projections of spending and of the
fiscal gap don't include supplementals.
We've identified approximately $50 million
in supplementals, although some may be
overstated because they are five-year
averages. They do tend to increase during
the session. Given the amount of that list,
it is going to be tough to get to a net
zero.
223
SENATOR ADAMS
We expected this supplemental because we
short-funded various programs. Isn't that
correct?
225
CO-CHAIR PARNELL
Mr. Teal cannot speak for what the
legislature's intent was.
226
SENATOR ADAMS
But he is giving this presentation and he
went through the details with us.
229
MR. TEAL
There are a number of things that we did
not anticipate such as a Medicaid
ratification from 1999. There is nothing on
the supplemental request list that I knew
we were short funding last year.
236
CO-CHAIR PARNELL
I was going to make a similar comment
however I look at this as overspending
rather than under-funding.
Regarding some of the items listed on your
anticipated list of supplemental requests,
such as the Department of Corrections, I
understand they are living within their
authorization.
Are the supplemental requests amounts your
estimates based on prior history or do you
have data to back up the information?
248
MR. TEAL
No. This is simply an average of the last
five-years for the Department of Law and
Department of Corrections. The total of
those is about $12 million. We have no
indication that either of those departments
will actually request a supplemental.
252
SENATOR ADAMS
Regarding the Department of Natural
Resources fire fighting disasters
estimation of a $19.2 million supplemental
request. Is that to fight fires such as the
one in the Mat-Su area, or throughout the
state?
254
MR. TEAL
I estimate that $3.9 million of that amount
is from FY99 and covers the May 28
disaster. The remaining $9 million is to
cover costs incurred in FY00.
257
SENATOR P. KELLY
Please explain the $2.2 million Medicaid
Services Ratification shortfall for the
Department of Health and Social Services.
258
MR. TEAL
It could be said that this item is a no-
choice option. The money has already been
spent. They can't spend the money without
an appropriation, but on the other hand,
they had no choice except to spend the
money.
264
SENATOR PHILLIPS
Are they required by law to spend the money
or is it a moral obligation or something
else?
267
MR. TEAL
There are quirky situations such as with
Medicaid. Checks are mailed every Tuesday
and in FY99 there were 53 weeks and
therefore 53 Tuesdays. The cost per week is
tens of millions of dollars so that extra
week is substantial.
SENATOR PHILLIPS
Was that the only major component?
MR. TEAL
No, fire fighting as well. There will
probably also be some ratification from the
Department of Law, which is normal.
278
SENATOR PHILLIPS
Was the extra Tuesday the only problem with
Medicaid?
281
MR. TEAL
If you ask the chairman, he would say they
overspent and if you ask the department,
they would say they were under funded.
283
SENATOR DONLEY
What ratification could we expect from the
Department of Law?
285
MR. TEAL
It usually involves settlements. I don't
know if there really will be any this year.
286
SENATOR DONLEY
Does the department pay the settlements
without legislative authorization? I
thought we still held that authority.
291
MR. TEAL
Yes, but in every department there are
extra costs that get missed in the budget
process and are usually quite small, such
as phone bills.
SENATOR DONLEY
So they are not major settlements?
MR. TEAL
No. I would expect that the total
ratification from all the departments that
aren't on this list will probably be less
than a million dollars.
Page 3: Special-funded Increments In the
Governor's FY01 Operating Budget
These supplemental numbers exclude some
one-time items listed on page 3. When we
say these are one-time items, we mean that
the funding method was one-time. One
example is the K-12 reappropriation
contained in last year's capital budget for
a number of operating purposes including
the Division of Motor Vehicles. The
departments can argue that their needs are
continuing and that the expenses were not
intended to be a one-time item. However, as
we look at the situation, the source of
funds is one-time and we can't expect the
K-12 lapse to be there year after year. An
increment would have to be added elsewhere
in the bill.
We just wanted to bring attention to those
items so they can be handled in
subcommittees. Some of the larger items
such as the Department of Community and
Economic Development are continuing
operating expenses that were handled in the
front section of the bill last year. It
can't simply be said there are $17 million
in savings. There will actually be between
two and four million dollars of savings.
317
SENATOR ADAMS
I don't consider all of the items listed on
this page as one-time items, some are long
term and some are not.
321
CO-CHAIR PARNELL
Clarify that only the funding sources are
one-time. The subcommittees will determine
whether they should continue.
327
MR. TEAL
There are two "hollow" authorizations:
tobacco settlements and Power Cost
Equalization (PCE).
The tobacco settlement is part of the
general fund. There is a shortage of about
nine to ten million dollars in tobacco
settlement funds. If all the money gets
appropriated and we only receive a portion,
the agencies can continue to spend the
balance due out of the regular general
fund.
PCE receipts are considered "other" funds
and does not have the same flexibility in
that unless the money is received, it can't
be spent.
343
CO-CHAIR PARNELL
Is that why your analysis is showing actual
spending of the FY01 proposed budget at
$109 million over last year and the
governor's analysis shows only a $98
million increase?
342
MR. TEAL
No. We put PCE and Southeast Energy
receipts in the general fund column and the
governor calls those receipts "other"
funds. It is the same issue but for a
different reason.
The problem is that this year the PCE
program was funded through the federal
"National Petroleum Reserve, Alaska" funds.
There is about $40 million available from
that source but the first call on that
money is community grants and there were
about $70 million in grant applications.
There were more applications for grants
than funds allocated. Therefore, PCE may
have no money left from that source, which
means PCE is out of money now and has no
certain source for FY01.
Senator Adams may have suggestions for this
situation.
353
CO-CHAIR PARNELL
354
MR. TEAL
It is a significant dollar amount for both
FY00 and FY01.
Page 8: Position Comparison
These were not unexpected. The biggest
increases were for the Department of Health
and Social Services for youth detention
facilities under construction.
We are starting from a different point than
the Office of Management and Budget. We are
starting after reductions were made for
some of the unallocated reductions last
year and they are starting with the
authorized budget, which had more
positions.
We would like to get a better handle on
positions. Last year's focus on positions
surprised us as well as the Office of
Management and Budget.
Until the legislature gives us more
direction on positions when adopting
amendments, it is difficult to determine
the intent.
We enter the reduction into the budget
bill, but can enter no effect on the
position count.
If you want us to keep better track of
positions, we need to address the intent
during the closeout process.
374
CO-CHAIR PARNELL
The budget subcommittees could specify the
dollar amounts and position authorizations
during their closeouts.
377
MR. TEAL
We've never paid that much attention to
them because the executive branch has the
flexibility to add positions anyway.
However, there is the public perception
issue and I think we will all try to pay
more attention.
380
SENATOR ADAMS
What triggered the increase in the number
of juvenile facilities positions?
384
MR. TEAL
The information is in the back of the
handout organized by department and also in
the detail budget books.
386
CO-CHAIR PARNELL
There were 54 new positions added for the
Mat-Su, Ketchikan and one other youth
detention facilities.
389
SENATOR ADAMS
These are needed positions that we
appropriated and that meet a service we
provide.
392
MR. TEAL
All in all there were no technical problems
in getting the governor's budget proposal
ready. The Division of Legislative Finance
is ready for the budget subcommittees' work
to begin.
395
SENATOR ADAMS
Before we start criticizing the governor's
budget, we should wait until we have gone
through the process of establishing our own
budget. We may have to add our own smoke
and mirrors.
401
CO-CHAIR PARNELL
402
Adjourn 9:29 AM
SENATE FINANCE COMMITTEE
LOG NOTES
1/13/00
Page 10
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