Legislature(2015 - 2016)SENATE FINANCE 532
04/23/2015 01:30 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Pat Pitney, Director, Office of Management and Budget, Office of the Governor: Alaska's Fiscal Crisis | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
April 23, 2015
1:34 p.m.
1:34:09 PM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 1:34 p.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Pat Pitney, Director, Office of Management and Budget,
Office of the Governor; Senator Cathy Giessel; Senator
Kevin Meyer.
SUMMARY
^PRESENTATION: PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT
AND BUDGET, OFFICE OF THE GOVERNOR: ALASKA'S FISCAL CRISIS
1:34:39 PM
Co-Chair Kelly stated that the presentation should be
focused on the future. He felt that the price of oil would
not increase. He wondered if the administration had any
plans for the following year. He stressed that he wanted to
support the administration. He
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, commented that // She discussed the
presentation titled, "FY2016 Budget Overview, Senate
Finance Committee" (copy on file).
Ms. Pitney looked at slide 2, "Budget Priorities":
•Opportunity for Alaskans
•Stable Economy
•Education
•Resource Development
•Affordable Energy
•Supporting Alaskan Families
Ms. Pitney addressed slide 3, "Budget Guidance: Limit
Spending":
•Multi-year approach
•All agencies and programs involved
•Maintain maximum service delivery
•Seek partnerships and opportunities to privatize
•Assess programs not specifically required by state
law
•Involve Alaskans
Ms. Pitney highlighted slide 4, "All Agencies
Contributing." She noted the expense and revenue reality.
Ms. Pitney passed slide 5, "UGF Revenue Scenarios: FY 14 to
FY 19."
Ms. Pitney looked at slide 6, "Reserves Projection at
Forecast."
Ms. Pitney highlighted slide 7, "UGF Revenue Scenarios:
FY14 to FY19." She stated that the slide was based on the
fall 2014 forecast. The dark line represented the revenue,
assuming the fall forecast where oil returned to $100. The
gap in 2016 was significant, even with the additional
reductions. She stated that there may be reserves through
2022.
1:39:28 PM
Ms. Pitney looked at slide 8, "Reserves projection at $50
oil." The graph reflected the same discussion that David
Teal addressed the previous day. The state could see no
reserves in the constitutional budget reserve (CBR) in FY
18, if oil stayed at $50. She felt that $50 was more likely
than $100.
1:40:28 PM
Ms. Pitney discussed slide 9, "Average Total State
Expenditures." The slide showed where Alaska fit with other
state spending. The line was a population adjusted line for
spending. If Alaska was spending on an average per state,
adjusted for population, state spending would be $5.3
billion. She furthered that removing the big states would
decrease the average to $4.8 billion. She stated that the
state was currently within the $4.8 billion to $5.3 billion
range within the current budget.
Ms. Pitney looked at slide 10, "Inflation and Population
Adjustment Approach." She stated that agency operations
were in the same place as in 1998.
Vice-Chair Micciche wondered why the "Statewide Ops" was an
outlier since 2008. Ms. Pitney replied that there were
three aspects: $228 million in debt service, and half was
considered school construction reimbursement; the Public
Employees' Retirement System (PERS) and Teacher Retirement
System (TRS) reimbursement; and oil and gas tax credits.
Co-Chair Kelly wondered if the revenue was $500 million.
Ms. Pitney agreed. She stated that the PERS and TRS was a
repayment for all the years when the full cost of the
retirement system was not collected.
1:45:14 PM
Vice-Chair Micciche assumed that the decline in FY 14 and
FY 15 was the reduction in liability because of the $3
billion infusion. Ms. Pitney replied that the payment was
in the $600 million range in FY 14; and $3 billion was
invested separately from the CBR in FY 15. It was
considered a fund transfer, so it was not considered an
expenditure.
Co-Chair MacKinnon encouraged a conversation about
evaluating the debt payment of $265 million as an annual
reoccurring cost, rather than an upfront investment. She
felt that the debt should be balanced and what needed to be
utilized to pay off debt. She offered that an investment of
$3 billion, with $500 million a year of savings, might
prompt other similar debts. She encouraged that type of
discussion with the Department of Revenue (DOR).
Co-Chair Kelly requested a graph that reflected the loss of
interest revenue. Ms. Pitney stated that the interest
earnings would be approximately $140 million.
Co-Chair Kelly wanted to see a graph of the interest
revenue.
Co-Chair MacKinnon remarked that the utilization of assets
was the greatest interest to Alaska. She encouraged a
conversation with DOR.
1:50:23 PM
Co-Chair Kelly queried the reduction in the number of
students. Senator Dunleavy replied that 2004 to 2014 saw an
approximately 3000 student decline.
Co-Chair Kelly surmised that, over that time, the state had
increased the DEED budget by $400 million per year. Senator
Dunleavy replied that he did not know the exact number.
Ms. Pitney looked at slide 11, "Examination of Core Agency
Missions":
OMB analysis of state statutes and agency budget
components
-How do they align with the legislature's core agency
missions?
-Some Functions and Components Do Not Align with Core
Agency Missions
-Options:
Leave Status Quo in Place
Narrow the Function or Component
Transfer or Consolidate the Function or Component
Privatize or Outsource the Function or Component
Repeal the Function or Component
-Examples
•OMB has identified 50+ statutes that appear to
be defunct
-Consider repeal
•Revolving Loan Funds
-There are 32 revolving loan funds in 6
different agencies
-Consider administration consolidation in
one entity
•Proprietary Entities (example: Alaska Aerospace
Corp)
-Consider privatizing, or forming public
private entity
Senator Dunleavy wondered if there was anything that would
not be considered for privatization. Ms. Pitney recalled
the same question from another meeting.
Senator Dunleavy restated his question. He stressed that
the knowledge of possible privatization may enhance the
conversations. Ms. Pitney responded that, generally
speaking, anything could be privatized. She stated that the
voucher program would not be highly prioritized in the
current administration.
Senator Dunleavy clarified that SJR 9 would have attempted
to change the constitution. He stated that the Alaska
Performance Scholarship was awarded to those to attend
private colleges, included religious colleges, in the
state.
Senator Dunleavy surmised that education was not part of
the conversation about privatization. Ms. Pitney replied
that OMB wanted a strong public education system. Senator
Dunleavy agreed.
2:00:17 PM
Senator Bishop remarked that he had a strong opinion on
Deferred Maintenance. He stated that he hoped that the
deferred maintenance budget would become zero.
Co-Chair Kelly queried a strategy for dealing with the
larger cost drivers, specifically education. He felt that
there would be a crisis situation for school funding. Ms.
Pitney replied that the governor reduced the previously
approved $32 million. The legislation that funded the $32
million required additional studies on the formula program,
which should be available the upcoming summer. The studies
would provide an opportunity for dialogue. The
administration wanted high performing and efficient
schools. She agreed that education was a large cost driver.
She furthered that oil and gas tax credits were large costs
drivers and the Permanent Fund Dividend was a large cost
driver. The conversation regarding the value to the state
was the most important aspect in drafting further budgets.
2:04:23 PM
Ms. Pitney looked at slide 13, "Engaging Alaskan":
Initial Conversation (June): Reductions, Right Size,
Priorities, Revenue Options
Engaging Alaskans across the state: Public Trust,
Respect, Persistence, Service, Teamwork
Ms. Pitney reiterated that there was significant wealth in
the state, but many people must be engaged to bring
awareness to the budget crisis.
Co-Chair Kelly believed that budget choices should be
transparent, but felt that a "roadshow" would not be
effective. He shared an anecdote about managing a sales
staff.
2:10:06 PM
AT EASE
2:19:57 PM
RECONVENED
2:20:09 PM
Vice-Chair Micciche noted that Alaska was generally
spending more per capita than other states. He remarked
that the governor had announced that he wanted a
sustainable budget model, and remarked that there may be a
20 percent budget reduction. He stated that the
administration was concerned with a reduction in the 9
percent budget cut. He wondered how there could be a plan
for a sustainability model without the larger budget
reductions. He felt that the legislature was very careful
in there budget reduction considerations, but wondered how
only a 9 percent cut would provide further sustainability.
He wondered how the state would reach further budget cuts,
without the discussion in the current year. Ms. Pitney
replied that the 25 percent target was first determined
after a conversation with each commissioner regarding a 5
percent reduction scenario. The 25 percent was across a
three or four year period. The 25 percent was intended to
examine how the agency would look, if it were reduced by 25
percent. She announced that some agencies that had already
seen a 25 percent reduction.
2:26:37 PM
Vice-Chair Micciche stated that the gap was almost parallel
in every combination of solutions, unless oil saw a
dramatic increase in price.
Co-Chair Kelly stated that there were two additional
documents titled, "Agency Operations" and "Agency Share of
total agency Operations, FY16 Governor's Request."
Senator Dunleavy echoed Vice-Chair Micciche's comments. He
felt that there should be a conversation about taxes. He
queried the administration's position on the current budget
proposal from the legislature. Ms. Pitney replied that, in
some cases, the budget went too far in its reductions.
Senator Dunleavy wondered how the legislature needed to
reconcile the reductions with the earlier 16 percent
reduction suggested by the governor. Ms. Pitney replied
that there should be prioritization, and the dialogue must
occur.
2:31:31 PM
Co-Chair Kelly remarked that there was an engagement with
the education community regarding the previous year's
budget infusion. He stated that the education community
would only state that they wanted more money. He felt that
an attempt to have a conversation about charter schools and
home schools was rejected by the education community, and
they only wanted more money. He remarked that there was a 4
percent decrease to education, and there was over a
thousand emails in a few days. He felt that there could not
be a reasonable dialogue about some items, because every
dollar in state government had a constituency. He furthered
that some dollars had a more active constituency than
others.
Senator Dunleavy felt that the other sources of revenue,
like taxes, would need to be greater to fill those gaps. He
stressed that the state could not tax its way out of its
fiscal shortfall. He stressed that the state must deal with
its budget problem.
2:37:17 PM
Senator Hoffman remarked that there may be some arguments
about the level of funding for education. He stated that
the presentation from David Teal that showed that the state
had $16 billion in FY 14. He stated that, in five years,
the $15 billion would be gone. He remarked that the state
would then be short $2.5 billion, but there was some
revenue from the last of the CBR. He remarked that the
state only had two to three years to come up with the
difference.
Co-Chair MacKinnon remarked that there was a challenge in
determining the proper help in increasing the revenue
stream. She stated that the state would still not fill the
"hole" so she was willing to reduce more programs.
2:43:23 PM
Senator Olson wondered what effect a possible Medicaid
expansion would have on the cost drivers. Ms. Pitney
replied that the Department of Administration (DOA)
supported Medicaid expansion.
Senator Olson wondered if there was a possibility that the
gap would be even greater than what was presented by David
Teal. Ms. Pitney replied that there was an existing
revenue gap, which would still be in place after reducing
all of state. She stated that Medicaid reform would not
reduce the budget gap.
Co-Chair MacKinnon felt that the math must be understood
before proceeding with the budget request. She did not know
how the state benefitted by 50 percent of the proposed
enrollees that could currently receive a 100 percent
payment from the federal government, with a 10 percent
state subsidy. She felt that the state would not benefit
from Medicaid expansion, although, the people of the state
may have better access to health care. She stated that Tri-
care recipients were 100 percent covered by the federal
government, except veterans may not be fully covered. She
furthered that the state would be picking up 10 percent of
the Tri-care reimbursement. She queried the math of the
Affordable Health Care Act. She shared that the U.S.
president announced that the system would provide for the
less fortunate who needed additional health care, and would
see a $2000 savings in the individual families. She shared
that some of her constituents shared that their insurance
rates increased, or their insurance was lost. She
specifically wondered how this particular time was
different than other times of health care strife. Ms.
Pitney replied that there had been 26 hearings related to
health care in the House and Senate. She stated that the
administration wanted to have Medicaid conversations with
those particular questions addressed in Senate Finance
hearings.
2:50:13 PM
Co-Chair Kelly stressed that the committee had done the
proper work to reduce the budget.
ADJOURNMENT
2:51:45 PM
The meeting was adjourned at 2:51 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 042315 Budget Overview for Senate Finance Committee 04 23 2015.pdf |
SFIN 4/23/2015 1:30:00 PM |
HB 72 |