Legislature(2013 - 2014)SENATE FINANCE 532
01/23/2013 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Fy14 Budget Overview: Legislative Finance Division | |
| Federal Budget Overview: Federal Funds Information for States | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
January 23, 2013
9:01 a.m.
9:01:42 AM
CALL TO ORDER
Co-Chair Kelly called the Senate Finance Committee meeting
to order at 9:01 a.m.
MEMBERS PRESENT
Senator Pete Kelly, Co-Chair
Senator Kevin Meyer, Co-Chair
Senator Anna Fairclough, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
David Teal, Director, Legislative Finance Division; Trinity
Tomsic, Deputy Executive Director at Federal Funds
Information for States
SUMMARY
FY14 BUDGET OVERVIEW: LEGISLATIVE FINANCE DIVISION
FEDERAL BUDGET OVERVIEW: FEDERAL FUNDS INFORMATION FOR
STATES
^FY14 BUDGET OVERVIEW: LEGISLATIVE FINANCE DIVISION
9:02:59 AM
AT EASE
9:03:18 AM
RECONVENED
9:04:03 AM
AT EASE
9:04:49 AM
RECONVENED
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
explained how the Legislative Finance Division (LFD)
functioned, and referred to a previous presentation by the
Office of Management and Budget (OMB). He remarked that,
currently, LFD agreed with the technical analysis of the
budget as presented by OMB. Although, he stressed that LFD
did not support or oppose the governor's budget. He
announced that the LFD fiscal summary was especially
important for the current year, because there was currently
no fiscal surplus. He remarked that in the prior eight
years, revenue had exceeded forecasts, therefore there was
a surplus. The legislature had expected a surplus at the
end of the previous session, but oil production fell
drastically after April 2012. He stressed that high oil
prices also contributed to the deficit. He felt that there
would need to be a withdrawal from savings in order to
resolve the deficit.
9:09:20 AM
Mr. Teal discussed a PowerPoint presentation, "FY14 Fiscal
Overview, Senate Finance Committee, January 23, 2013" (copy
on file). He looked at slides 1 and 2, "State of Alaska
Fiscal Summary-FY13 and FY14 (Part 1)." The slide displayed
the $410 million number on line 51 for FY13. He urged the
committee not to "trust" that number, because it included a
$250 million to the Statutory Budget Reserve (SBR). He
explained that the money was deposited in the SBR, because
there was an expected surplus; also, it was the
legislature's desire to actively save money, rather than to
save "leftover" money. Money was deposited in the SBR early
in the 2012 legislative session.
Mr. Teal pointed out the $10 million deficit in FY13. The
reason for the deficit was the change in projections, which
was inevitable because both oil production and oil price
were volatile. Small changes in production and price have a
large impact on the revenue stream, so it was difficult to
make accurate projections. He pointed out the $900 million
swing downward from a surplus of $500 million in April
2012.
Senator Hoffman queried the FY13 end balance of the SBR and
Constitutional Budget Reserve (CBR). Mr. Teal replied that
there was a little over $5 billion in the SBR and slightly
over $11 billion in the CBR, with a total of $16 or $17
billion depending on the daily change of the stock market.
Mr. Teal explained that the $410 million deficit included
the $250 SBR savings, so with that adjustment, one could
consider that deficit at $160 million-plus or minus $100 to
$200 million.
9:14:04 AM
Senator Bishop remarked that the deficit could disappear,
if the oil production was back up to over 602,000 barrels
per day. Mr. Teal agreed, and furthered that the deficit
was $160 million, plus or minus a couple hundred million
dollars.
Mr. Teal looked at slide 1, "State of Alaska Fiscal Summary
- FY 13 and FY 14 (Part 1)." The Department of Revenue
(DOR) projected that FY 14 oil production would decline by
approximately 2.7 percent, and the oil price would be
higher by about one dollar. He looked at line 1, and noted
that the revenue was down from the year prior by $510
million. There would be a deficit, if spending in FY 14
were to match spending in FY 15 of $510 million plus
whatever deficit resulted from the FY 13 budget. He pointed
out that the total spending on line 37 was $1.17 billion
lower than in FY 13. He shared that the average capital
budget for the ten years prior was $875 million. The
governor's current capital budget request of $870 million
lined up with that average, but was approximately $100
million less than the FY 13 governor's request; so the
current capital budget was the second highest governor's
request of the last ten years.
9:19:10 AM
Mr. Teal shared slide 3, "FY 05 to FY 14 Capital Budget."
The table reflected the capital budget from FY 05 to FY 14.
He pointed out that the final budget was always much higher
than the governor's request, because the legislature
typically added a significant amount of money to the
governor's request. The governor's request was
approximately 50 percent of the final budget. The current
capital budget would double to $1.8 billion, with the
governor's request at 49 percent of the total, resulting in
a $650 million deficit. He stressed that the legislature
was only able to add $263 million in spending, before
utilizing the savings accounts. He stressed that his
presentation was based on projections, with a sizeable
margin of error; so it was difficult to accurately project
the budget and spending for FY 14, because it was 18 months
away.
Mr. Teal looked at slide 2, and pointed out the $263
million that the governor left over for the legislature
additions, spending, or saving. The $508 million request
included a $120 million savings withdrawal from the Alaska
Housing Capital Corporation. If there was a $508 million
surplus, recognizing the $120 million from savings, the
true surplus would be $388 million. The governor's budget
had unintentionally omitted $125 million to the Alaska
Industrial Development and Export Authority (AIDEA) Energy
Fund. So, if you subtract the $125 million from the $388
million, there was actually $263 million available for
capital spending. He stated that if there were a $1.120
billion, the fiscal summary would reflect a $1.508 billion.
He stressed that the savings withdrawals should not be
combined with the amount of money left over.
9:24:37 AM
Mr. Teal stated that if there was no money in the
governor's request, there would be a $263 million surplus;
adding $263 million to the capital budget would bring the
available funds back to zero; and spending more than $263
million would result in a deficit. He reiterated that the
projection should be considered plus or minus a couple
hundred million dollars; and the surplus and deficit
calculation also included the operating budget. The
governor's operating and supplemental budget numbers should
remain at requested, if the legislature intended to spend
the $263 million on capital items. He shared that the
governor's request was the smallest increase proposed since
the "bump" in revenue began in FY 05, at less than 1
percent. The average increase for the eight years prior was
6.5 percent.
Mr. Teal looked at slide 4, "Figure 1. Unrestricted General
Fund Revenue Budget History." If that 1 percent or less
growth, there was a chance that a deficit could be avoided
for the following three or four years; but after four
years, with a decline in revenue, the 1 percent growth
would result in a deficit. He remarked that the graph
displayed the assumed 1 percent growth in State agency
operations; flat state-wide operations, retirement costs,
etc.; the capital budget was flat at $875 million, which
was roughly the governor's request and the average for the
10 years prior.
Mr. Teal looked at slide 4, "Figure 1. Unrestricted General
Fund Revenue/ Budget History ($ millions, except for oil
prices)." He noted that the deficits would begin
immediately, and exceed $4 billion by 2022. Based on the
revenue projections and state spending, the reserves would
disappear by 2025. He pointed out that the capital budget
forecast, which was highlighted in yellow, remained fairly
flat. The capital budget declined from approximately $7
billion a year to approximately $6 billion, because the
decline in production was offset by forecasted higher
prices. He shared that LFD focused on the expenditure side,
because the expenditures were within the legislature's
direct and immediate control. He guessed that the
legislature would not be able to spend the entire surplus
of $263 million on capital projects, unless savings were
utilized. It would be difficult to hold the operating
budget to the 1 percent, or $52 million increase.
9:28:39 AM
Vice-Chair Fairclough noticed that her back up did not
match the slide on the screen. Mr. Teal replied that he
had manually changed the growth rate from the governor's
growth rate. He furthered that changes in the governor's
budget were not included in the members' packets, but he
was merely displaying the rate for information.
Mr. Teal stressed that his message was not intended to be
"doom and gloom." He remarked that the Alaska was very
wealthy compared to other states. The state's average
capital budget was large, compared to past spending. He
displayed a slide that was not included in the file, which
showed that budgets were flat for twenty years when the
State had no money. The 6.5 percent growth rate occurred at
the moment that revenue climbed. He stressed that it was
the job of the legislature to determine how to respond to
the revenue decline. He stressed that the growth over the
past 6 years was unsustainable.
Mr. Teal stated that much of his information was included
in the LFD Fiscal Summary.
9:34:38 AM
Senator Hoffman looked at page 4, and wondered why there
was no acknowledgement of the rising price of barrel of oil
He stressed that those numbers were projected to continue
to rise, so he wondered where the figures in the chart were
derived. Mr. Teal replied that the chart was based on the
numbers provided by DOR.
Senator Hoffman clarified that it was anticipated that by
2022, the price of barrel of oil would sell at $124. Mr.
Teal agreed.
9:35:29 AM
AT EASE
9:37:34 AM
RECONVENED
^FEDERAL BUDGET OVERVIEW: FEDERAL FUNDS INFORMATION FOR
STATES
9:38:25 AM
TRINITY TOMSIC, DEPUTY EXECUTIVE DIRECTOR AT FEDERAL FUNDS
INFORMATION FOR STATES (FFIS), introduced herself. She
explained that FFIS was a small national organization that
worked with the legislative and executive branches in all
of the states, to monitor the fiscal impact of federal
policy on states and state budgets.
Ms. Tomsic displayed the PowerPoint Presentation, "Federal
Budget and Alaska; Alaska Legislature: Senate Finance
Committee Briefing" (copy on file). She explained that FFIS
focused on the federal grants to state and local
governments, and examined the specific events in 2013. The
most important issue facing states was the federal budget
Sequester. The Sequester was the "across the board" cuts
that were scheduled to go into effect one month later. .She
looked at slide 2, "Where the money goes: pieces of the
federal budget pie." The pie graph displayed the
composition of federal outlays in FY 11:
Defense: $700 billion; 20 percent
Domestic Discretionary: $648 billion; 18 percent
Social Security: $725 billion; 20 percent
Medicare: $480 billion; 13 percent
Medicaid: $275 billion; 8 percent
Other Mandatory: $546 billion; 15 percent
Net Interest: $230 billion; 6 percent
Ms. Tomsic explained that total federal outlays were $3.6
trillion; and half of the $3.6 trillion went to mandatory
programs like social security, Medicare, Medicaid, net
interest, nutrition programs, welfare programs, federal
retirement benefits, etc. Mandatory programs were governed
outside of the annual appropriation process; so the cost of
the mandatory programs was based on caseloads and programs
costs. The only way that congress changes the growth rates
and programs was through the authorization process.
Discretionary was less than half of the budget, and was
subject to the appropriation process. Of the total $3.6
trillion outlays, the federal budget deficit in 2011 was
$1.5 trillion. She pointed out that there would still be a
deficit; if defense and domestic discretionary spending
were eliminated.
9:42:33 AM
Ms. Tomsic displayed slide 3, "Payments for individuals
have come to dominate federal grants." She stated that
approximately $600 billion of the $3.6 trillion was
distributed to state and local governments in the form of
federal grants. Those federal grants were not the only way
that the states benefited from federal spending: defense,
social security, and Medicare were forms of federal
spending outside of federal grants. The $600 billion in
federal grant money to states represented approximately 18
percent of the federal budget. The growth of the grants was
mostly based on payments that were going to individuals,
specifically through the Medicaid program. The other types
of grants that were distributed to state and local
governments included capital expenditure like
transportation programs. The remainder was the other
discretionary programs like education, non-Medicaid related
health programs, etc. She noted that states were receiving
more Medicaid money, but the other program funding was
decreasing.
Ms. Tomsic discussed slide 4, "What programs areas are
supported by state/local grants?" The graph showed the
federal outlays to state and local governments, FY11.
Health: $293 billion; 48 percent
Income Security: $114; 19 percent
Justice: $5 billion; 1 percent
Energy, Natural Resources, Environment: $13 billion; 2
percent
Agriculture: $1 billion; zero percent
Community and Regional Development: $20 billion; 3
percent
Transportation: $61 billion; 10 percent
Education, Training, Employment, and Social Services:
$89 billion; 15 percent
Other: $11 billion; 2 percent
Ms. Tomsic discussed slide 5, "Federal grants going to
Alaska: share of funding by function." She explained that
FFIS had a sophisticated grant database, which looked at
all of the money that was distributed to Alaska, and how it
was spent. She stressed that transportation programs in
Alaska far exceeded the national average.
9:46:42 AM
Ms. Tomsic looked at slide 6, "Federal grants going to
Alaska: per capita, 2011." She stated that Medicaid was
ranked 10 with $1,041 per capita; other mandatory was
ranked 5 with $659 per capita; discretionary was ranked 1
with $1,812 per capita; with a total ranked at 3 with
$3,512 per capita.
Ms. Tomsic displayed slide 7, "What influences grant
allocations?"
Medicaid redistributes income from:
-richer to poorer states
-smaller to larger programs
-cheaper to more expensive programs
-Alaska receives $1,041 per capita in federal Medicaid
funding and ranks number 10; FMAP = 50.00 percent
Many programs allocate funds based on need
-Alaska is a relatively wealthy state (high per capita
income and low poverty rate)
Alaska benefits from grant programs with small-state
minimums
9:50:02 AM
Ms. Tomsic displayed slide 8, "What influences grant
allocations?"
Demographics
-26 percent of Alaska's population is under 18 (above
average) and 8 percent is 65 or older (below average)
-Alaska has experienced a slight increase in its share
of total population since 2000
Federal facilities/land
-Large federal presence in Alaska
-Alaska benefits from programs with formulas based on
receipts from federal land
-BLM's Payments in Lieu of Taxes, Mineral Leasing
Payments, Impact Aid
Ms. Tomsic looked at slide 9, "What's the outlook in FY
2013 and beyond?"
Budget Control Act (BCA) sequester
FY 2013 appropriations
-Continuing Resolution (CR) expires 3/27/13
-State/local programs disproportionately targeted for
spending cuts since 2010
Comprehensive deficit reduction
-Medicaid reform; cost-shift to states?
-Further cuts in discretionary spending
-Trade-off: more certainty, less funding
Ms. Tomsic explained the federal government had not yet
passed a budget for FY 13. The federal government was
currently acting in a continuing resolution, which required
the federal government to continue to fund the programs at
previous year levels through March 27, 2013. At some point,
congress needed to develop a budget for the year. Since
2010, there may have been cuts to the overall discretionary
budget. The programs benefiting state and local governments
were disproportionately targeted, and received much larger
cuts than the budget as a whole. The funding levels would
be based on the appropriation bill, in addition to the cuts
that would occur through the sequester process. Until
January 1, 2013, there were congress conversations related
to comprehensive deficit reduction. Currently, those
conversations were not occurring, and the budget deficit
had not changed. From the state's perspective, Medicaid was
a mandatory entitlement program. There would be cuts to
Medicaid when congress addresses the deficit. There were
many proposals to cut the Medicaid program; but most of
those proposals did not include ideas to make the program
more effective, reduce the cost of federal governments and
states. The Medicaid cutting proposals were directed
towards reducing the federal share and increasing the state
share. There would be further cuts in discretionary
spending, when comprehensive deficit reductions occur.
9:54:51 AM
Ms. Tomsic discussed slide 10, "Discretionary spending has
been on the decline." The chart showed how, over time,
states have been slowly receiving cuts. The red bar
represented discretionary programs; which had fallen from
$116 billion in FY 10 to $104 billion in FY 04.
Ms. Tomsic displayed slide 11, "The BCA and Looming
Sequester."
Sequester scheduled to occur on March 1, 2013
$984 billion in cuts required over FYs 2013-2021
(roughly $109 billion per year, half from defense and
half from nondefense)
-"Fix" reduced FY 2013 cuts from $109 billion to
$85 billion a year
Many mandatory and a few discretionary programs are
exempt (special rule for special/trust funds)
ATB in FY 2013, different process for FY 2014 and
beyond
9:59:07 AM
Ms. Tomsic shared slide 12, "FAQs on the BCA Sequester."
1) What is the ATB percentage cut?
-FFIS estimates -5.9 percent for nondefense
discretionary (was -8.2 percent) and -5.7 percent
for nondefense mandatory (was -7.6 percent)
-Exact percentage won't be known until March 2013
2) How will individual programs be affected?
-ATB cut applied to FY 2013 funding in place on
3/1/13 (CR?)
-Cuts must be applied to each program, project,
and activity
-OMB has authority to apply special rules,
exemptions
3) What is the timing of the cuts?
-Agencies have some discretion
-Reflected in grant awards issued after March 1,
2013
Ms. Tomsic related that the U.S. president had the ability
to exempt military personnel. Civilian personnel and
procurement would absorb those across the board defense
cuts.
Ms. Tomsic discussed slide 13, "While most state grant
programs are subject to sequester." She stated that 24
percent of the state programs were exempt, and 76 were
covered.
Ms. Tomsic looked at slide 14, "Most Alaska grant funding
is exempt." She related that in 2013, Alaska would receive
about $2.7 billion. Of that $2.7 billion, only $656 million
would be subject to Sequester. Medicaid was the reason that
most of the grant funding was exempt. Alaska received
approximately $900 million in Medicaid grant funding for
Medicaid.
Senator Bishop asked for Ms. Tomsic to repeat her previous
statement. Ms. Tomsic estimated that Alaska would receive
$2.7 billion in 2013; of that $2.7 billion, $656 million
was subject to sequester.
Ms. Tomsic displayed slide 15, "Some program areas in
Alaska are more affected than others."
Agriculture: 100 percent
Employment and Training: 100 percent
Community Development: 100 percent
Justice: 100 percent
Energy, Env., Natural Resources: 100 percent
General Gov't: 100 percent
Education: 87 percent
Income Security and Social Services: 26 percent
Health: 6 percent
Transportation: 3 percent
10:06:40 AM
Ms. Tomsic discussed slide 16, "Among the ten largest
grants in Alaska, seven are totally exempt." The seven
grants that were exempt in Alaska were Medicaid - Vendor,
$837 million; Airport Improvement Program, $220 million;
Food Stamp Benefits, $172 million; FHWA - Surface
Transportation, Medicaid Admin., $71 million; Temporary
Assistance to Needy Families, $45 million; and Pell Grants,
$43 million. The three grants that are at least partially
covered were the National Highway Performance, $272
million; Impact Aid - Basic Support Payments, $143 million;
Consolidated Health Centers, $40 million.
Ms. Tomsic shared side 17, "The largest nonexempt grants in
Alaska mostly benefit local governments." She stressed that
the local governments may not feel the effects of the
federal cuts, because the State may decide to make up the
difference. The largest nonexempt grans in Alaska that
mostly benefit local governments were Impact Aid - Basic
Support Payments, $143 million; Consolidated Health
Centers, $40 million; Title 1 - Local Education Agencies
(LEAs), $37 million; Special Education Basic State Grant,
$37 million; Unemployment Insurance - State Admin., $27
million; BLM Payments in Lieu of Taxes, $27 million; WIC
Supplemental Feeding Program, $25 million; Mineral Leasing,
$23 million; Fish and Wildlife - Fish Restoration, $28
million; Fish and Wildlife - Wildlife Restoration, $15
million.
10:10:16 AM
Ms. Tomsic displayed slide 18, "Potential impact of amended
sequester in Alaska." Alaska's covered programs received
$637 million in FY 12; if there were no sequester in 2013,
Alaska would receive $656 million; but with the sequester
the number had fallen to $619 million. Therefore there was
an $18 million. Congress recently reauthorized
transportation structure by creating new structures. She
reiterated that Medicaid would be the program that congress
would focus on after the sequester.
Ms. Tomsic discussed slide 19, "We're captive on the
carousel."
One "crisis" averted, more in store:
-March 1 sequester
-Debt ceiling has been reached and will need to be
raised
-FY 2013 appropriations
-CR expires March 27
Total nondefense discretionary spending is $610
billion, the federal deficit is $1.1 trillion
10:15:25 AM
Ms. Tomsic looked at slide 20, "So what's the bottom line?"
-The yawning gap between federal revenues and spending
persists.
-Tax expenditures and Medicare/Medicaid are squeezing
out other spending.
-The state-federal partnership is now defined by
Medicaid.
-Non-Medicaid grants have been on the descent for
years, and that's unlikely to change.
Ms. Tomsic discussed the table, "Major Discretionary and
Mandatory Program Funding." She remarked that the table
displayed national amounts for 2011, 2012, and what would
be funded in 2013 under the sequester. The Education
Department and Health & Human Services Department had been
roughly level funded over the recent years. Education would
move from $37 billion to $35 billion under sequester.
Health & Human Services would move from $25 billion to $24
billion.
Co-Chair Kelly stated that one million seconds ago would be
the "Tuesday before last"; one billion seconds ago would be
around 1981 or 1982; and one trillion seconds ago was
31,000 BC.
10:20:26 AM
Co-Chair Meyer noted that Alaska's Medicare population was
the second largest growing population in the United States.
He wondered what the future looked like for Medicare, and
wondered how "Obamacare" would impact the budget. Ms.
Tomsic replied that Medicare was not an area that she was
familiar with. She relayed overall observations, but was
limited on details. She stated that Medicare was subject to
sequester, but was only 2 percent. She looked at provider
payments, and explained that every year, provider payments
were going to be cut.
Co-Chair Meyer wondered how the Affordable Care Act would
impact Medicare and Medicaid. Ms. Tomsic replied that the
only impact would occur when states decide to take
advantage of the program.
Senator Dunleavy surmised that Alaska received a total of
$2.7 billion in federal funding. Ms. Tomsic agreed and
furthered that FFIS only tracked 95 percent of the state
and local government funding, so the actual number was
slightly higher.
Senator Dunleavy wondered if the mandates were tied to
Alaska receiving the money. Ms. Tomsic replied that the
mandates were tied to the funding.
Senator Dunleavy surmised that if Alaska chose not to
receive the funding, it would not be required to follow
through with the mandates. Ms. Tomsic agreed. She added
that those mandates were considered "conditions" upon
receiving federal funding.
10:25:59 AM
Senator Bishop would like to have a discussion regarding
tribal funding. Ms. Tomsic replied that she was not
familiar with tribal funding, because FFIS did not track it
closely. Ms. Tomsic agreed to provide further information.
Senator Hoffman noted that the defense budget represented
27 percent of the total federal budget, at $750 billion. He
felt that the presentation did not reflect how defense
spending and cuts affected Alaska. Ms. Tomsic agreed to
provide further information.
Senator Hoffman wondered what the defense budget would look
like in 2021, after the mandatory cuts. Ms. Tomsic replied
that the budget was outlined with total spending limits
that were divided between different defense accounts. She
furthered that funding was expected to grow by
approximately 2 percent per year.
10:31:04 AM
Senator Hoffman wondered if the defense cuts were
predetermined, or if Congress would determine where the
cuts were allocated by state. Ms. Tomsic replied that in
2013 the cuts were across the board. Going forward, the
reductions would be in the overall caps. Congress would
then determine what programs would be impacted, but it was
still split between defense and non-defense programs.
Senator Hoffman stressed that he would like to focus on the
defense budget, because it was such a significant part of
Alaska. Co-Chair Kelly agreed.
Co-Chair Kelly discussed housekeeping.
ADJOURNMENT
10:33:15 AM
The meeting was adjourned at 10:33 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Alaska SFC (TT 0113).pdf |
SFIN 1/23/2013 9:00:00 AM |
Federal Overview |
| LFD FY14 Fiscal Overview.pdf |
SFIN 1/23/2013 9:00:00 AM |
SB19-LFD FY14 Overview |
| FY 2013 CR Updated March Sequester.pdf |
SFIN 1/23/2013 9:00:00 AM |
Federal Budget Overview |