Legislature(2011 - 2012)SENATE FINANCE 532
01/26/2011 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Fy12 Budget Overview & Fiscal Summary | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
January 26, 2011
9:02 a.m.
9:02:20 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lesil McGuire, Vice-Chair
Senator Johnny Ellis
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
MEMBERS ABSENT
None
ALSO PRESENT
Director Karen Rehfeld, Office of Management and Budget;
John Boucher, Senior Economist, Office of Management and
Budget; Senator Cathy Giessel
PRESENT VIA TELECONFERENCE
None
SUMMARY
^FY12 Budget Overview & Fiscal Summary
9:06:29 AM
DIRECTOR KAREN REHFELD, OFFICE OF MANAGEMENT AND BUDGET,
presented the PowerPoint "FY2012 Budget Overview." She
noted the change in the staff of the Office of Management
and Budget (OMB), and displayed the layout of the staff in
slide 2.
Ms. Rehfeld stated that the governor released the FY12
budget on December 15, 2010. She reported that the
governor's budget vision was to "position Alaska's economy
for growth and position Alaska's families for opportunity,"
as said in slide 3. She said the FY12 budget would be a
planning tool that was crafted to support the governor's
vision. Within the vision were the principles highlighted
in slide 4. The first principle was fiscal restraint, and
she remarked that Alaska was in a better financial
situation than many other states. She remarked Alaska had
maintained budget discipline, and its reserves were well
established. If discipline were maintained, some savings
could be used to leverage investments while still insuring
a healthy accessible reserve. She stated that spending
discipline in cash reserves were reflected in Alaska's AAA
bond rating. The financial community recognized that Alaska
had sound financial footing, and the positive bond rating
lowers the cost of debt. She remarked that strategic
investments in Alaska's infrastructure would produce
economic growth. She stated that investment in affordable
energy would create opportunities for the future; and the
governor's budget proposed key investments in resource and
economic development. She reported that the last budget
principle was to maintain cash reserves. She noted that
Alaska had approximately $12 billion in savings, which did
not include the public education fund or permanent fund
earnings. She emphasized that Alaska had a balanced budget,
substantial cash reserves, and an excellent bond rating.
Ms. Rehfeld discussed slide 5: "FY2012 Budget Priorities."
She emphasized that the budget priorities were specifically
outlined in the Alaska constitution: resource and economic
development, education, and public safety. She highlighted
some of the components of the budget that supported the
constitutional priorities. She began with the components
related to resource and economic development: energy,
access to resources, and natural gas development. One of
the budget proposals was $65.7 million to advance the
planning, design, and permitting for the Susitna
Hydroelectric Project. The Susitna Hydroelectric Project
would supply energy to South-central and interior Alaska.
The project would use the estimated balance of the Railbelt
Energy Fund, and would create jobs to reach Alaska's energy
policy goal. She stated that the budget proposed to
allocate $25 million for renewable energy grants, $25
million towards the weatherization programs, and $10
million for the Southeast Energy Grant Fund. She stressed
that the governor placed importance on using Alaska's
natural resources to stimulate Alaska's economy. The budget
included funding for roads to access the resources: $800
million to complete environmental management of the Dalton
Highway to Umiat; and $2.5 million for western access in
the Ambler mining district.
9:12:06 AM
Ms. Rehfeld continued to discuss natural gas development.
She stated that the governor's budget included $160 million
for Alaska Gasline Inducement Act (AGIA) reimbursement,
which would bring the imbursement to $345 million of the
$500 million total imbursement.
Co-Chair Stedman queried the balance of accruement and pay
out of AGIA. Ms. Rehfeld agreed to provide that
information.
Co-Chair Hoffman wondered how the administration planned to
meet the five year schedule of funding the $250 million
towards alternative energy. He remarked that the
legislature had agreed to pay $50 million each year, but
the governor's budget only proposed a $25 million payment.
Ms. Rehfeld responded that it was the intent of the
legislature to pay $50 million a year toward renewable
energy grants, and remarked that some additional payments
were made during the first couple of years of the program.
The Alaska Energy Authority (AEA) had used more time than
anticipated to handle the grant proposals, and praised AEA
for their efforts. The FY11 budget proposal allowed AEA
time to sort the grant proposals. The governor stated that
the $25 million in the budget was intended as a starting
point for budget discussions.
Co-Chair Hoffman wondered if the legislature could consider
an additional $25 million when discussing the reimbursement
payments. Ms. Rehfeld replied that the governor would be
open to further discussion and ideas regarding AEA.
Co-Chair Hoffman stressed that the renewable energy grant
program was embarking on its fourth year. The governor's
proposed rate of $25 million would not meet the $250
million goal over five years. Ms. Rehfeld understood the
concern regarding the reimbursement of the energy grants,
and reiterated that the intent of the program was to fund
projects that would reduce the cost of energy.
9:16:45 AM
Ms. Rehfeld discussed natural gas development efforts. She
stated that the governor's budget included approximately
$6.9 million for ongoing coordination of AGIA; and $5.5
million for the Alaska Gasline Development Corporation.
Co-Chair Stedman queried the position vacancy of the AGIA
coordinator. Ms. Rehfeld replied that there was currently
recruitment for that position, and she agreed to provide
further information.
Senator McGuire wondered if the $5.5 million allocation for
the Alaska Gasline Development Corporation was considered
to be the total amount needed for the project completion.
Ms. Rehfeld disclosed that the current fiscal note of
approximately $16 million would cover the incurring costs
in the current year for contracts and activities related
various departments. She remarked that the intent of the
budget request was to maintain report recommendations, but
it was difficult to determine exactly what the FY12 budget
needed. She pointed out that the design of the request was
merely a starting point.
9:19:27 AM
Ms Rehfeld highlighted the education portion of the budget
priorities. She stated that the governor's budget included
$8.2 million to fund the Alaska Performance Scholarship
awards for eligible high school seniors who graduate in
2011. The scholarships could be used for post-secondary
training and/or college. The budget also included the
Alaska Advantage needs based component through the Alaska
Commission on Post-secondary Education. The budget includes
full funding for the K-12 foundation and people
transportation programs for Alaska's 53 school districts,
serving approximately 130,000 students statewide. She added
that the budget included forward funding for K-12 education
in FY13.
Ms. Rehfeld reported the public safety priorities. She
stated that the governor's budget proposed year two of
initiative to end domestic violence and sexual assault in
Alaska. The initiative focused on prevention,
investigation, research, services to victims, and child
safety. The budget included $3.4 million to fund 15 new
Village Public Safety Officers (VPSOs), and three new state
troopers. Through the Alaska Housing Finance Corporation
(AHFC) proposed $1 million to help fund housing for VPSOs.
She stated that since the three years prior, VPSOs had
grown from 47 funded positions to 86 at the end of the
current fiscal year. She emphasized that the state would
have 101 VPSOs by the end of FY 12 upon approval of the
current budget request. She asserted that the goal was to
have a trooper, a police officer, or a VPSO in every
community in Alaska that desires law enforcement presence.
She stated that the governor intended to continue the $3
million budget for crime prevention efforts, and an
additional $3.2 million to combat sexual assault and
domestic through investigation, reporting, research, and
services to victims. She reported that two positions were
requested in the agency of Public Safety for the technical
crimes unit to investigate internet crimes against
children.
9:22:19 AM
Ms. Rehfeld discussed slide 6: "FY2012 Expenditures by
Category." She stated that the total proposed budget was a
little over $11 billion. She pointed to the left side of
the pie chart, which was highlighted in shades of a gold
color. She explained that just over half of the total
budget represented was generally considered non-
discretionary: formula programs, Permanent Fund (PF), and
statewide costs. She pointed to the right hand side of the
pie chart, which was represented as blue and red slices.
She stated that those were considered discretionary funds:
agency operations and capital spending. She divided the
unrestricted general fund (UGF) and agency nonformula
budget. She explained that the UGF held about $1.86
billion. She stated that the committee should focus on the
agency nonformula funds, when looking for reductions in
state spending. She revealed that when the governor was
examining the administration's budget, he limited the state
agency growth to 1.9 percent in UGF. The budget included
collective bargaining unit agreements that would be in
FY12, which included six bargaining units, non-covered
employees, and the University of Alaska. She stated that
the increase would be just under $77 million, which
included $40 million in UGF.
9:24:52 AM
Ms Rehfeld discussed slide 7: "FY2012 Operation Budget-
Formula." She explained that formula programs represented
$2.98 billion, which was 26 percent of the $11 billion
budget. She stated that under the education program was the
$8.2 million performance scholarship, $1.13 billion K-12
FY12, and the transfer of $1.14 billion into the K-12 FY14
fund. The FY12 budget for K-12 was based on the current
statutory formula, and the current base student allocation:
$5,680.
9:29:18 AM
Ms. Rehfeld highlighted the statewide appropriations (slide
8" and remarked that the statewide appropriation was $1.3
billion, which accounted for 11 percent of the total
budget. She stated that there was $479 million in the
budget for retirement unfunded liability, which was $123
million more than the year prior. The unfunded liability
was currently $9.7 billion: The Public Employee Retirement
System (PERS) was approximately $6.3 billion and the
Teachers Retirement System (TRS) was approximately $3.4
billion.
Co-Chair Stedman remarked a time delay in the numbers for
PERS and TRS, so the data needed to be brought up to date.
Ms. Rehfeld agreed, and stated that the unfunded liability
was based on the actuarial work. She reported that OMB
hoped for continual market growth that would help cover
losses from FY08 and FY09. She stressed that the costs
could be managed reasonably over time if there were
discussions about other management approaches.
9:32:33 AM
Senator Thomas queried the disposition of the $400 million
after the lawsuit of the actuaries. Ms. Rehfeld replied
that the $400 million was allocated between PERS and TRS.
She remarked that the Department of Administration could
give more details regarding how the funds were distributed.
Co-Chair Stedman wondered if the $400 million went directly
into the trust. Ms. Rehfeld offered to provide that
information.
Ms. Rehfeld continued to discuss slide 8, and stated that
the governor's budget had $400 million in oil tax credits.
She remarked that there were two pieces of the $850 million
in oil tax credits. She stated that $450 million was
already accounted in the revenue forecast, so the specific
portion mentioned in the budget was the estimated amount
designated for the eligible credits for the oil companies.
She remarked that the tax credits were designed to
encourage more oil production and exploration in Alaska. In
the FY11 budget, the tax credits estimate was $180 million.
She stated that in the last October, DOR provided a new
estimate of an additional $250 million. The total
eligibility for tax credits in FY11 was $430 million. The
budget was based on companies' spending estimates, and who
would be eligible in the next fiscal year. She stated that
language was added to the current budget to clarify
amounts, timing, and payment deadlines.
Co-Chair Stedman stated that DOR would be looking at the
historic credits from the last four years, and there would
be an in depth discussion about what expenditures could
generate credits.
Ms. Rehfeld discussed debt service, which was currently
$290 million. She explained that debt service was for
school debt reimbursement, GO bonds, lease purchases, and
any authorized state debt. She discussed the replenishment
of the Community Revenue Sharing (CRS), and stated that $60
million would be allocated to 162 incorporated communities
and 149 unincorporated communities throughout Alaska.
9:37:22 AM
Ms. Rehfeld discussed slide 9: "FY2012 Capital Budget." She
stated that the capital budget was $1.6 billion, or roughly
14 percent of the total budget. She noted that OMB had
included $103 million to leverage funds for transportation,
highway, aviation, and water/sewer projects. She pointed
out that there were three port projects in the budget: The
Port of Anchorage, the Port MacKenzie, and dock
improvements in Skagway.
Co-Chair Stedman remarked that there would be further
discussion regarding the port development. Ms. Rehfeld
furthered that there was interest in many ports around
Alaska's coastline, especially along the Arctic coastline.
Co-Chair Hoffman wondered if there was interest in the need
for a port for the Donlin Creek resource. Ms. Rehfeld
replied that she was unsure, but agreed to provide that
information. Co-Chair Stedman restated that the committee
would address that issue in the later port development
discussions.
9:40:13 AM
Ms Rehfeld continued to address slide 9. She discussed the
Susitna hydro planning and the Renewable Energy and
Weatherization funds. She stated that the governor
requested year two of the deferred maintenance programs.
She explained that the Department of Education and Early
Childhood Development would be allotted $28.4 million for
the Quinhagak K-12 renovation and addition project, and
$19.9 million for 14 school major maintenance projects.
Co-Chair Hoffman complimented the administration for
funding a rural school, and wondered if the governor had
considered Kasayulie case in the budget. Ms. Rehfeld
responded that the governor was interested in resolving the
Kasayulie case, and believed he would be open to further
discussion.
Senator Olson wondered if Quinhagak was the only rural
school that the governor planned to fund. Ms. Rehfeld
responded that it was the only rural school proposal.
Senator Thomas wondered if the funding for Susitna was for
three to four years. Ms. Rehfeld agreed to provide more
information regarding the Susitna time-line. Co-Chair
Stedman stated that further discussion would take place
regarding Susitna funding.
Senator Olson queried the total cost of Susitna Project.
JOHN BOUCHER, SENIOR ECONOMIST, OFFICE OF MANAGEMENT AND
BUDGET, replied that there was an Alaska Energy Study
published the previous November. He stated that he recalled
the total cost would be between $4.5 and $4.8 billion.
Senator Olson wondered what efforts were being done
regarding energy costs in rural Alaska. Ms. Rehfeld replied
that there were various approaches specifically related to
renewable energy, efficiency, and conservation efforts.
9:46:18 AM
Ms. Rehfeld discussed the FY10 supplemental budget, and
pointed out that the legislature had approved the first
round of deferred maintenance projects. She stated that the
agencies reported that collectively nearly half of their
projects would be under construction or out to bid by the
FY11 construction season.
Ms. Rehfeld stated that the governor proposed to use Alaska
Housing Capital Corporation (AHCC) for some specific
projects: AGIA reimbursement; the in-state gas project; the
port projects; the energy, renewable, weatherization in
Southeast projects; and the school major maintenance
projects.
Co-Chair Stedman reminded the committee that the three
years prior, money had been put away in savings to obtain
federal match to act as a safety net for the state. He
discussed transferring the money between accounts. Ms.
Rehfeld stated that through the budget clarification
project, the general fund discussions highlight the
subfunds. The governor's budget proposed that the AHCC
dividends were under $17 million.
9:51:07 AM
Co-Chair Stedman wondered if the ongoing cash flow had an
impact on the budget. Ms. Rehfeld replied that the
governor's budget proposed to use some of the cash flow
funds: approximately $295 million. She pointed to the
fiscal summaries, and remarked that if the legislature
chose to continue with the same proposed level of spending,
without using the savings accounts, there would be a
deficit. She offered that if there were no reserve
accounts, the governor probably would not propose to spend
the additional money. She stated that reserves should be
used to grow the economy. She remarked that the state must
have spending discipline; yet, management of cash reserves
were a priority, and strategic investments could be
necessary. She stressed that the governor's proposal was
available for the legislature to consider.
Co-Chair Stedman emphasized that February 17, 2011 was the
deadline for amendments to the governor's proposed FY12
budget, and wondered if the committee should be prepared
for substantial amendments. Ms. Rehfeld replied that OMB
was currently working on the supplemental budget, and were
looking for areas in the current year's budget where there
were unforeseen circumstances in the prior year's budget.
She remarked that OMB could bring amendments to the
committee, if the issues were not addressed in the current
budget. She anticipated some amendments, but did not
characterize the number of amendments to be substantial.
Co-Chair Stedman remarked that the state could see a
possible $25 million Medicaid adjustment. Ms. Rehfeld
replied that if there was no extension of the high
reimbursement rate, there would be a GF replacement of
approximately $123 million.
9:54:36 AM
Co-Chair Hoffman wondered if the supplemental budget would
be funded with savings accounts. Ms. Rehfeld replied that
she did not anticipate the use of the savings accounts for
the supplemental budget.
Co-Chair Stedman expressed concern in the ongoing cash flow
of the FY12 budget. He remarked that if there were
additional expenditures, it would be deficit spending. Ms.
Rehfeld replied that there was a concern regarding oil
production decline, and the strategies for encouraging oil
revenue through production efforts. She remarked that
reserves would be relied on in the future to enhance
infrastructure investments. She specifically remarked on
the significant effort to contain the cost of Medicaid.
Co-Chair Stedman asserted that the intent of establishing
reserves was to maintain a strong position as a state, and
he felt that the state was in a weaker position with the
executive branch's efforts to access the reserves. Ms.
Rehfeld replied that the governor was open to discussions
about determining the appropriate level of spending. She
reiterated that the governor's intention was to achieve a
balance, and determine what items could wait until the next
funding cycle.
10:00:40 AM
Co-Chair Hoffman commented that the $645 million general
fund capital budget was a good starting point for
discussions.
Ms. Rehfeld addressed slide 10: "State Budget-Another
Perspective." She discussed the components of the budget
displayed in the pie chart. She explained that nearly 60
percent of Alaska's budget benefited communities,
organizations, and individuals through grants, direct
payments and capital project funding: Medicaid, permanent
fund dividends, revenue sharing, school funding, retirement
unfunded liability, capital projects, and named recipient
grants. She stated that 21 percent of the budget
represented the portions of the budget related to
travel/contractual/commodities in the operating budget:
travel, hotels, professional services, fuel, and equipment.
She pointed out that many of the purchased services
investments directly stimulate Alaska's private sector
economy. She stated that 20 percent of the budget
represented salaries for state employees. She remarked that
seven of the eighteen agencies represent two-thirds of the
personal services costs and positions: University,
Department of Transportation and Public Facilities,
Department of Health and Social Services, Department of
Corrections, Department of Fish and Game, Department of
Administration, and Department of Public Safety.
10:04:07 AM
Ms. Rehfeld reiterated that the proposed budget was merely
a starting point, and offered information listed on OMB's
website.
Ms. Rehfeld displayed scenarios from "Executive Summary
FY2012 Ten-year Plan" (copy on file).
10:05:05 AM
AT EASE
10:05:44 AM
RECONVENED
Ms. Rehfeld explained that five scenarios were discussed in
the Executive Summary. She reiterated that principles
should be followed when making decisions about the budget:
spending restraint and looking at strategic investments
when managing the cash reserves.
Mr. Boucher discussed page 13: "Scenario 2: Governor's
Budget with 3 percent Annual Expenditure Growth."
Co-Chair Stedman wondered where the 3 percent was applied
within the scenario. Mr. Boucher replied that the 3 percent
would affect the UGF.
Mr. Boucher pointed out the FY13 column. He stated that the
numbers were produced with the governor's budget and the
fall forecast. He stated that the total reserves would grow
throughout the period.
10:09:47 AM
Mr. Boucher stated that the details on general fund
expenditures assumed a certain growth rate, so there would
be no itemization of the unfunded liability.
Co-Chair Stedman asked for further explanation regarding
multiple components in the unfunded liability. Mr. Boucher
explained that when a flat percentage is used, some
components of the budget would presume other portions of
the discretionary budget, so the components may be
negative. He stated that the unfunded liability growth from
FY12 to FY17 was approximately $350 million, which would
put the total at about $825 million. He stated the
expenditures would go from $5.4 billion in FY12 to $6.3
billion in FY17.
Co-Chair Hoffman queried the growth rate on a percentage
basis, and wondered how capital budget expenditures were
determined. Mr. Boucher responded that the spreadsheet
included all GF expenditures, so it was assumed that GF
expenditures would grow. He stated that there had been a
steady six percent growth rate for several years.
Co-Chair Stedman requested further information, and wanted
to know exactly what was included in the scenario
calculations.
10:15:46 AM
Co-Chair Hoffman noticed expenditures of $5.4 billion in
the FY12 budget, and wondered if that included $645 million
in capital. Mr. Boucher replied that the $645 million was
for the UGF in FY12.
Senator McGuire asked about the 3 percent decline rate. She
requested scenarios that included 3 percent, 5 percent, 7
percent, and 9 percent decline rates. Co-Chair Stedman
believed that Legislative Budget and Audit would provide
information regarding production and price. Mr. Boucher
added that the 3 percent was solely applied to oil revenue
and production in "Scenario 2." He stated that the 3
percent would be applied to GF expenditures, but remarked
that the 10-year plan examined alternate prices. He stated
that alternate prices were the focus, rather than alternate
production. He stated that OMB was offering alternate
scenarios to add perspective in budget discussions.
10:19:41 AM
Senator Thomas wondered if the $77.96 listed in the FY11
column was the predicted price or the actual price. Mr.
Boucher replied that the prices were based on the published
numbers from the "Fall 2010 Revenue Forecast." Co-Chair
Stedman remarked Legislative Budget and Audit would track
the price change over the year.
Co-Chair Hoffman queried the rates of return in the reserve
sub-accounts. Mr. Boucher replied that the earnings
assumptions were 3.84 percent for the short-term, and the
6.96 percent for the long-term.
10:24:04 AM
Co-Chair Hoffman pointed out the $29 billion reserves
projection for FY21. Mr. Boucher responded that was the
projected based on the displayed assumptions, and
unforeseen factors could affect the assumptions.
Co-Chair Stedman requested that the capital portions be
removed and the operating budget display more detail. He
also expressed that he would like to see more in depth
comparisons between FY10, FY11, and FY12.
ADJOURNMENT
The meeting was adjourned at 10:28 AM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012611 OMB FY12 Budget Overview.pdf |
SFIN 1/26/2011 9:00:00 AM |