Legislature(2015 - 2016)SENATE FINANCE 532
01/20/2016 10:00 AM Senate FINANCE
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| Start | |
| Presentation: Overview Fy 17 Operating Budget | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
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SENATE FINANCE COMMITTEE
January 20, 2016
10:08 a.m.
10:08:07 AM
CALL TO ORDER
Co-Chair Kelly called the Senate Finance Committee meeting
to order at 10:08 a.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.
SUMMARY
PRESENTATION: OVERVIEW FY 17 OPERATING BUDGET
Co-Chair Kelly welcomed everyone back to Senate Finance. He
introduced the committee members, as well as committee
staff and members of the media. He recognized former
Representative Mike Davis, former Representative Tom Brice,
and Commissioner Randall Hoffbeck in attendance. He
recognized the amount of work done by the committee and
those associated with the legislature. He discussed the
agenda for the day.
^PRESENTATION: OVERVIEW FY 17 OPERATING BUDGET
10:12:08 AM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
(OMB), OFFICE OF THE GOVERNOR, introduced herself and
relayed that it had been a busy time for the
administration. She shared that the administration had
given more than 50 presentations throughout the state
relating to the budget, and thought hearing from Alaskans
as well as sharing budget information had been very
valuable.
Ms. Pitney discussed the presentation "New Sustainable
Alaska Plan FY 2017 Budget Overview" (copy on file). She
commented that the 2017 operating budget, capital budget,
and mental health trust bills provided the first steps
towards reaching the new sustainable Alaska plan.
Ms. Pitney addressed slide 2, "New Sustainable Alaska
Plan":
The Governor's FY2017 Budget includes key components
of the Governor's three-year plan to assure
sustainable and balanced budgets long term.
1. Sustainably Utilize the Earnings Reserve
2. Provide Dividends
3. Reduce Spending
4. Priority Investments
5. Broad Based Taxes and Credit Reform
Ms. Pitney informed the committee that she had been asked
to focus on the FY 17 spending component of the plan versus
going through the entire plan. She furthered that the FY 17
budgets, as listed in the presentation, provided the first
four components of the New Sustainable Alaska Plan. She
pointed out that there was separate legislation that
covered the final component of broad based taxes and credit
reform. She shared that the administration looked forward
to discussing the plan in total, and she would be touching
on a few of the forward-looking pieces as they applied to
the FY 17 spending level.
Senator Hoffman asked if the key components listed on slide
2 were listed in order of priority or at random.
Ms. Pitney stated there was no priority to the way the
items were listed, nor was it random; they were all
components of the plan that were necessary to reach a
sustainable, long-term balanced budget.
10:15:17 AM
Ms. Pitney moved to slide 3, "FY2017 Budget by All Fund
Sources," which showed a pie chart. She stated that in
total, the FY 17 budget was $9.5 billion, half of which was
unrestricted general fund (UGF). Other state funds was 7
percent of the total, half of which was a budgetary process
in which the state recorded expenses in two different
places. The continued that other state funds also included
statutory designated program recipes that were specific to
a particular program. She continued that 9 percent was
designated general funds (DGF); which was largely earned
revenue such as University tuition and fees, and marine
highway tickets. She noted that both other state funds and
the DGF were relatively stable year to year.
Ms. Pitney continued discussing the breakdown of fund
sources on slide 3, pointing out the large federal funds
component that comprised $3.1 billion of the budget. She
noted that there were two changes within the federal funds:
within the Department of Transportation and Public
Facilities federal funds there was a decrease in extra
authority; and Medicaid federal funding had gone up due to
Medicaid expansion. All other federal funds within the
category were things such as the University and other
departments. She continued that the Department of
Corrections (DOC) and the Department of Education and Early
Development (DEED) had federal funds (and most every
agency), but were much smaller components than the federal
highway match and Medicaid amounts.
Ms. Pitney observed that at $9.5 billion (using a straight
comparison), the budget would be down from $10.2 billion in
FY 16.
10:18:03 AM
Vice-Chair Micciche asked for clarification regarding the
other state funds listed on the graph. Ms. Pitney specified
that part of the category was interagency receipts, created
when one department worked in service on behalf of another
department. She advised that in the overall budget, the
amount was counted twice - there was an agency that paid
for the service, as well as an agency that serviced it. She
used an example of services from the internet technology
(IT) area, and described how OMB paid the Department of
Administration (DOA) for the IT service component, as did
all other departments. She specified that approximately $40
million of "other" funds were the expenditures associated
with IT. She used another example of DOC providing laundry
service for the Alaska Marine Highway System.
Vice-Chair Micciche asked if the total spend ($9.5 billion)
was actually less due to the accounting practices employed
by the state. Ms. Pitney clarified that $9.5 billion was
the total budget and would be different if compared to a
financial statement.
Vice-Chair Micciche asked if the committee could get
information on the actual expenditures after the removal of
the interagency service charges.
Ms. Pitney estimated that interagency receipts totaled
approximately half of the other state funds at $350 million
to $370 million. She agreed to provide the committee with
the actual expenditures information Vice-Chair Micciche had
requested.
10:20:50 AM
Co-Chair MacKinnon asked if the administration had
completed an analysis of the federal funds and the required
matching GF. She asked Ms. Pitney to comment in the context
of "program creep," which she described as program growth
motivated by an effort to gain additional federal funding.
She noticed that federal receipts had been going up, and
wondered what the administration was doing to analyze how
the federal funds were being received as well as rules were
associated with the receipt of the funds.
Ms. Pitney shared that the administration examined each
request for federal funds, considering the long-term
ramifications and future obligations to the state through a
potential increase in matching funds or necessity of
running the program without federal funds. Additionally,
economic advantage and relevance to the state's mission was
examined. She commented that the administration, for the
most part, was interested in bolstering the economy to the
degree that it could be accomplished with federal funds.
Co-Chair MacKinnon clarified that she was trying to
understand the additional requirements inside state
government, in order to evaluate how the state was going
forward with federal funds.
Co-Chair MacKinnon wondered if the budget being presented
incorporated an assumption of passage of every component of
what the governor had proposed, versus suggesting changes
through bills.
Ms. Pitney stated that the budget incorporated everything
in the capital, operating, and mental health trust budgets
(SB 138, SB 139, and SB 140); without assuming the oil and
gas tax reform and revenue bills, which were coming in
separately. She furthered that if the broad-based tax bills
were passed, the draw on the states savings for UGF would
be just under $500 million. She continued that by 2019
(under the plan) there would be no draw on savings save for
a sustainable draw on the interest earned from any
available savings. She concluded that the budget being
presented assumed the Permanent Fund Protection Act,
however there were separate pieces of legislation that
carried revenue bills.
10:25:48 AM
Co-Chair MacKinnon emphasized the importance of
communication during the current legislative session. She
shared a concern that there were assumptions embedded in
the governor's budget, some of which would require policy
changes. She thought it might be confusing to the public.
She thought it appeared that a capping of the Permanent
Fund Dividend (PFD) was embedded in the numbers section of
governor's proposal, which would require a huge policy
discussion. She wondered if Ms. Pitney could point out
which components of the proposal were predicated on
legislative agreement and which were not.
Senator Dunleavy asked if it was the policy of the
administration to accept as much federal money as possible.
Ms. Pitney answered in the negative.
10:27:16 AM
Ms. Pitney moved to slide 4, "FY2015-2017 Funding by Type,"
which showed a bar graph illustrating the FY 15 and FY 16
enacted budgets and the FY 17 governor's proposed budget.
She thought the slide was a good example of the pieces
within the budget that would also require a policy change.
Vice-Chair Micciche wondered how the state could apply a
formula under which federal funds were evaluated to
determine if specific funding enabled a program or service
that was not constitutionally required or added value to a
program or service in the past that the state could no
longer afford. He wondered if the administration had gone
through such an exercise.
Ms. Pitney stated that the administration had an exercise
for each program being considered with an opportunity for
federal funds, and there was a determination of whether it
was prudent to continue federal funding or not.
Vice-Chair Micciche asked if the exercise was a formal
process that could be shared with the committee.
Ms. Pitney explained that the exercise was an agency-by-
agency process that focused on the things that were
changing from year to year. She used the example of
numerous grants to the University that were not subject to
the process. She used the example of the Department of
Environmental Conservation supplemental request for a $250
million federal grant, which had been examined through the
following questions: did it require matching funds, were
there strings attached, what service did it provide, and
was it prudent for the state to accept the funds. She added
that the determination would also come forward to the
legislature.
10:30:00 AM
AT EASE
10:34:35 AM
RECONVENED
Ms. Pitney clarified that she misspoke regarding the other
state funds, and the slide had represented the amount
without duplication.
Senator Bishop asked if other funds counted interagency
receipts twice.
Ms. Pitney clarified that the presentation did not include
the interagency receipts and capital improvement project
(CIP) receipts, which were duplicated funds.
Senator Dunleavy asked if the funds were double-counted or
not. Ms. Pitney answered in the negative.
10:36:06 AM
Ms. Pitney continued discussing slide 4. She referred back
to Co-Chair MacKinnon's question regarding policy change
assumptions in the appropriations bill, and thought the
graph was a good depiction. The graph was a trend graph
from FY 15 to FY 17, indicating the different funding
types: UGF, DGF, other state funds, permanent fund earnings
reserve, and federal funds. She pointed out the rapid drop
in UGF; while both DGF and other state funds were fairly
flat. She highlighted the permanent fund earnings reserve,
which showed a significant change in the FY 17 budget. She
drew attention to a blue arrow, which noted that $3.2
million from the permanent fund earnings reserve would go
to the general fund (using the Permanent Fund Protection
Act), and $700 million would go towards dividend checks.
Co-Chair Kelly discussed the complexity of budgets, and
expressed concern that there were assumptions in the
budget. He referred to the previous session and the
assumption of Medicaid expansion being included in the
governor's budget. He thought that much of what was in the
budget being presented were assumptions tied to huge policy
decisions. He continued that there was an important
distinction in the manner in which budgets were
constructed; the administration had the ability to work on
budgeting behind closed doors, whereas the finance
committee was compelled to do so in public. He thought it
was important that the public understood that the taxes and
revenue measures that were built into the governor's
proposed budget were not necessarily going to be put into
action. He emphasized that there would be a large ongoing
public process discussion on the matters.
Ms. Pitney pointed out that all of the legislation
associated with the budget had been submitted (unlike the
previous session), and was out in the open for
consideration. She mentioned the Permanent Fund Protection
Act and tax measures, and specified that because of the
appropriation language required in the act, the act was
represented within the budget appropriation document.
Co-Chair Kelly warned Ms. Pitney not to be surprised if
some of the items in question were pulled out of the budget
over time to simplify the process.
10:40:59 AM
Ms. Pitney discussed slide 5, "FY2017 UGF Spend: $4.82
Billion," and pointed out a continuous reduction in UGF.
She commented that agency nonformula and formula programs
comprised the largest share of the UGF at over 83 percent.
Ms. Pitney moved to slide 6, "FY2017 UGF Budget by
Category." She noted that within the formula programs (at
42 percent of the UGF budget); the education formula was 26
percent of total UGF spending, and Medicaid and other
health formula was 16 percent. She thought it was important
to note that the Department of Health and Social Services
(DHSS) formula programs included foster care, subsidized
adoption, temporary assistance, adult public assistance,
senior benefit payments, permanent fund dividend hold-
harmless provision, and Medicaid. She continued that
Medicaid was the largest component of formula programs,
which counted for about $650 million. She added that there
were several other programs in health aside from Medicaid.
Co-Chair Kelly handed the gavel to Co-Chair MacKinnon.
Senator Hoffman referred to slide 5, and wondered how much
of the UGF were anticipated to come from the Constitutional
Budget Reserve (CBR).
Ms. Pitney stated that based on implementation of the
Permanent Fund Protection Act, $427 million would come from
the CBR.
Senator Hoffman asked for the total draw from the CBR.
Ms. Pitney stated that the draw from the CBR for FY 16 was
in the area of $3.5 billion. She continued that in FY 17
the draw from savings was anticipated to be $426 million.
10:43:47 AM
Ms. Pitney continued to discuss slide 6, relating that the
statewide appropriations category included items such as
debt retirement and tax credits, which assumed $73 million
for tax credits. She directed attention to a footnote the
slide:
* Statewide Appropriations does not include $1,200
million for oil and gas tax credit reform funding from
CBR/SBR
Ms. Pitney elaborated that the plan by the administration
had put forward oil and gas tax credit reform. The
administration anticipated honoring all earned credits that
were earned by the time the current program was closed;
which together would total an additional $1.2 billion. She
continued that going forward on oil and gas tax credits,
the state would come down from $600 million or $700 million
to a steady average of about $100 million annually. The
statewide appropriations only included $73 million for oil
and gas tax credits.
Co-Chair MacKinnon handed the gavel back to Co-Chair Kelly.
Co-Chair MacKinnon asked if the additional $1.2 billion was
included in the operating budget because the administration
had reduced the availability of funds down to $73 million
for tax credits, while anticipating $600 million to $700
million in credit application requests.
Ms. Pitney answered in the affirmative, and stated that the
existing tax credit statute had a required minimum based on
ten percent of production tax. The minimum of $73 million
was included in the budget. She continued that the
administration had wanted to make sure it was noted that it
was the intent of the administration to honor all earned
tax credits, while going forward with acceptable reform
measures.
Co-Chair MacKinnon clarified that she had been trying to
point out that the proposed policy may be consistent with
Alaska state statute, yet was dependent upon policy being
implemented by the legislature in order to accomplish what
was intended.
Ms. Pitney concurred.
Ms. Pitney pointed out the capital budget on slide 6,
noting it was constrained at $195 million and focused on
the federal match components for transportation, water and
sewer, and a minor amount in maintenance and a few schools.
She reiterated that it was a very small capital budget; and
informed that the plan included provisions for a general
obligation bond about which they would solicit discussion
from the legislature before introducing.
10:47:43 AM
Ms. Pitney moved to slide 7, "FY17 UGF Agency Operating
Budget," which showed a pie chart depicting funding
categories. She thought the layout of the slide was a good
start for a policy discussion. She looked at the "health,
life, safety, justice" category; which included DHSS, DOC,
the Public Defender Agency, the Office of Public Advocacy
(OPA), the criminal division, and the Alaska Court System.
She discussed criminal justice reform and identified that
it would be an area for savings. She discussed significant
reductions in the agencies, which had come down by almost
10 percent since 2015, and accounted for 44 percent of the
UGF agency operating budget.
Ms. Pitney discussed the "all other executive" funding
category - which included the Office of the Governor; DOA;
the Department of Commerce, Community and Economic
Development; and the Department of Natural Resources. The
agencies had been reduced by 27 percent since FY 15.
Ms. Pitney looked at the education funding category, which
included K-12 education, DEED, the University, and Alaska
Vocational Technical Center (AVTEC).
Vice-Chair Micciche was concerned about the way that slide
7 was representing the budget. He commented that the slide
suggested that education had been cut by 8.5 percent, and
DHSS had been cut by 9.8 percent; and considered that it
was not an effective way of viewing the budget.
Ms. Pitney described the slide as "forward looking" and
mentioned large considerations such as criminal justice
reform, Medicaid reform, holding education capacity, and
adding efficiencies to government. She thought the slide
was looking at the mentioned areas in a holistic way. She
continued that the following few slides would provide the
exact reductions in areas of K-12 education, DHSS, and
other areas; and the numbers were not substantially
different than the percentages on slide 7.
Vice-Chair Micciche discussed the grouping of agencies on
slide 7, and thought the slide was confusing.
10:52:25 AM
Ms. Pitney discussed slide 8, "Continue to Reduce
Spending":
Goal: Maintain service delivery to the maximum extent
possible while reducing costs
Multi-year approach
•All agencies and programs involved
•Maximize efficiency to do more with less,
implementing 11 efficiency initiatives
•Offices closed across the state
•Services reduced or eliminated
•Workforce reductions
•Contract negotiations
•Grants reduced or eliminated
Ms. Pitney shared that the goal of the administration was
to continue to reduce spending, and pointed out that the
current fiscal year budget had reduced spending in the
agency operating budget. She mentioned overall reductions,
and thought that when reduction of government spending was
discussed it was most often pertaining to reducing agency
operations. The administration was viewing the reductions
as a multi-year approach, and the current reduction
consideration was a net of $100 million. She detailed that
there had been $140 million in reductions combined with
some increased spending on priority initiatives for a net
reduction of $100 million.
Ms. Pitney recounted that the administration had been
working efficiency initiatives, had identified 11, and had
been moving forward with 4 of those identified. The
administration had not yet realized all the potential
savings, as the initiatives were longer term efforts. She
remarked that instead of the adage "do more with less,"
realistically the state would be doing less with less
[funding]. She emphasized the need to continue state
operations most efficiently.
Co-Chair MacKinnon referred to Ms. Pitney's comment about
"doing less with less" which she thought raised the
question of whether the state had transferred spending to
federal funds while still engaged in the same activities.
She asked if Ms. Pitney could provide the committee with a
list of areas in which spending reductions were indicated,
and federal dollars had been shifted to cover the expense
in question. She was unsure about the accuracy of the
alleged spending reductions in the presentation. She noted
an increase in spending in DHSS, with more federal funding.
She reiterated her request for a list of new federal
funding and how it had offset the GF spending, or an
indication of if there had been program reductions and
program loss inside any agencies.
Ms. Pitney agreed that OMB could provide a list of some of
the expenditure offsets. She specified that the
administration had reduced the UGF spending by $140
million, and had added roughly $40 million in priority
initiatives in the budget. She stated that it had used
federal or other funds in the budget to offset reductions
and maintain service delivery to the maximum extent
possible.
10:56:32 AM
Co-Chair MacKinnon was concerned that the administration
was presenting a budget containing spending increases. She
wanted to see reduction in state government spending and
was not sure changing funding sources would accomplish the
goal.
Senator Hoffman asked Ms. Pitney to provide a detailed
analysis of the $40 million in additional funding
priorities that the administration had identified.
Ms. Pitney stated that the information was contained in her
presentation.
Ms. Pitney clarified that there were reduced services, and
in no way was there a majority of costs offset. She listed
Medicaid expansion as a significant opportunity for the
state to use federal money for services that were
previously state funded; and stated that Medicaid expansion
had been an important and conscious decision by the
administration.
Senator Dunleavy asked if Ms. Pitney could provide the
committee with a list (to date) of what state funding had
been saved, and in what manner, through the increased
federal funding from Medicaid expansion.
Ms. Pitney answered in the affirmative.
Senator Dunleavy asked if the state had saved money. Ms.
Pitney answered in the affirmative.
10:59:25 AM
Ms. Pitney discussed slide 9, "Budget Guidance to
Departments":
Among the issues that departments were asked to
consider as they evaluated their budgets:
•Is it required by a constitutional mandate?
•Is it required by a legislative mandate?
•Does it leverage other resources?
•Does it pay for itself or make money for the state?
•How utilized is the service?
•What is the impact on the statewide economy?
•How difficult would it be to privatize or be absorbed
by another agency?
•Does it directly contribute to the vision of this
Administration?
Ms. Pitney informed the committee that the administration
had started the budget process with a recognition of how
many reductions agencies had already taken before setting a
target.
Ms. Pitney discussed slide 10, "Continue to Reduce
Spending":
Workforce
•600 fewer state employees compared to last year
•Additional staff reductions through 2019
•Contract negotiations continue
Agency Operating Budgets
•$400M cut in FY16
•$140M cut in FY17
o Education, UA, AVTEC reduced by $25M (1.5%)
o Health, Life Safety, and Justice reduced $64M
(3.6%)
o Other agencies reduced $50M (8.5%)
Senator Hoffman asked if Ms. Pitney had referred to a
reduction in FY 17 or a reduction from the previous year.
Ms. Pitney clarified that the slide was comparing the
number of permanent employees from December of the previous
year to the number of employees in November 2015.
Senator Hoffman asked if comparing FY 16 to FY 17, how many
fewer state employees were being proposed in the FY 17
budget.
Ms. Pitney stated that the administration was proposing an
additional reduction of 185 positions.
Senator Hoffman asked if she was referring to actual
positions with people occupying them in FY 16.
Ms. Pitney answered in the affirmative. She described the
method at which the administration arrived at quantifying a
reduction in workforce; through looking at budgeted
positions over time, and data from the Department of Labor
and Workforce Development. She continued that from December
FY 15 to December FY 16, the state was paying 1,400 fewer
individuals.
11:03:40 AM
Co-Chair Kelly asked if the reduction of 600 state
employees was confined to permanent employees, and from
what time span.
Ms. Pitney confirmed that it was from December 2014 to the
current time.
Senator Hoffman asked how many of the position reductions
were funded by GF.
Ms. Pitney estimated that of the proposed reduction of 180
positions, over 170 were funded by GF.
Senator Dunleavy asked about the full-time equivalent (FTE)
status of the 600 positions listed on the slide.
Ms. Pitney stated that the data showed 626 fewer full-time
permanent employees, and 8 additional permanent part-time
employees.
11:05:14 AM
AT EASE
11:07:03 AM
RECONVENED
Ms. Pitney discussed slide 15, "Medicaid":
•Medicaid $1,740M (all funding sources)
•FY15 through FY17 yields UGF savings of $106,070.7
attributable to the Medicaid program
•Savings from the Medicaid Services Component are
$89,501.6 with the remaining balance of $16,569.1
representing savings from Corrections, Behavioral
Health, CAMA, and Juvenile Justice.
Ms. Pitney referred to Senator Dunleavy's question about
Medicaid savings, and referred to a table on the bottom of
the slide. She pointed out that there had been a $57.9
million reduction of the Medicaid services component, which
was not necessarily due to Medicaid expansion but due to
some provisions of expansion as well as other reform
efforts. The non-Medicaid service components showed state
savings, as a result of federal dollars paying for items
previously funded by the state. She discussed Medicaid-
eligible prisoners, reduction in behavior health grants,
and a catastrophic insurance program as examples of state
savings enabled through Medicaid expansion. The
administration anticipated a total savings associated with
Medicaid expansion to be $106 million.
Co-Chair MacKinnon related a personal anecdote about
shopping and realizing equal savings to expenditures. She
wondered if actual savings were realized, or if other
expenditures outweighed the actual savings to the state.
Ms. Pitney responded that the state had spent less UGF for
Medicaid and other programs than compared to the same time
the previous year, due to Medicaid expansion.
Co-Chair MacKinnon wondered if the state had provided new
services with federal money.
Ms. Pitney elaborated that there were individuals receiving
health care through federal funding who previously did not
have health care. She continued that there was enhanced
funding in the state economy due to Medicaid expansion.
Additionally, the state had funded 100 percent of care for
some individuals who were now covered 100 percent by the
federal government, which showed true savings.
11:11:58 AM
Ms. Pitney moved to slide 16, "K-12 Funding":
· K-12 UGF formula is 26% of all UGF funding
· K-12 UGF formula $1,243M
· Base student allocation, in AS 14.17.470,
FY15 $5,830
FY16 $5,880
FY17 $5,930
· FY17 budget projects 118,459 K-12 students
· Increase in School Trust Fund kept UGF level
· Several DEED grants reduced
Ms. Pitney elaborated that the K-12 formula funding went to
communities with the exception of boarding schools and
special schools. She discussed the School Trust Fund, which
increased from $13 million the previous year to $30 million
the current year. She explained that the funding was an
off-set that allowed for meeting the increased base student
allocation (BSA) at the same UGF.
Co-Chair Kelly wondered if Ms. Pitney had asserted earlier
in the presentation that there was a reduction in state
funding for education.
Ms. Pitney referred back to slide 12, and discussed the
three components of the education funding group. Education
and early childhood development (including K-12 formula and
many education grants) was funded at $116 million below the
FY 15 appropriation level, but was not a true reduction in
education spending due to one-time funding in FY 15. She
asserted that there was $40 million less in the FY 17
budget than if there had been no action taken on education
funding the previous year.
11:15:37 AM
AT EASE
11:16:26 AM
RECONVENED
Senator Dunleavy asked if the projected 118,459 students
listed on slide 16 was more or less students than the
previous year.
Ms. Pitney responded that the 2014-2015 school year
estimate had 10,000 more K-12 students than the projected
number. She added that the slide reflected estimates done
in the fall of 2015, and the update data would need to come
from DEED.
Senator Hoffman asked if Ms. Pitney could provide his
office with the comparison of student numbers broken down
by school district.
Ms. Pitney answered in the affirmative.
Co-Chair Kelly stated that the committee would move forward
with the presentation, but thought the subject K-12 funding
necessitated more investigation and discussion about what
constituted a cut to education. He had observed changes in
student numbers but had not observed a cut to education
funding while he was a member of the legislature.
Ms. Pitney reiterated that the reduction in question was
from one-time funding that had been provided as part of the
FY 15 appropriation.
Co-Chair MacKinnon asked about information listed on slide
12, and asked about Ms. Pitney's mention of utilization of
assets rolling off of the School Trust Fund. She asked if
Ms. Pitney had alleged that the legislature had taken a
draw of $17 million from the fund in FY 16.
Ms. Pitney thought it had been $13 million, and stated that
the draw from the fund in the current year was $30 million.
Co-Chair MacKinnon asked if the one-time funding was being
considered, and if the following year would lack a revenue
source to fund an increase.
Ms. Pitney relayed that there had been a conservative
investment earnings assumption and statute associated with
the School Trust Fund; and there was legislation that would
make the School Trust Fund investment earnings more
consistent with the Power Cost Equalization (PCE) Fund
average annual investment earnings and draw.
11:19:34 AM
Co-Chair MacKinnon asked about the calculation for taking a
fund draw. She wondered if it was a statutory privilege or
regulatory change the administration was taking, and wanted
to understand the formula that was being employed.
Ms. Pitney stated that there was an available balance of
earnings in the School Trust Fund account, and the
administration would put forward legislation to change the
earnings estimate assumptions.
Co-Chair MacKinnon asked if the $30 million draw in the FY
17 budget would take a majority of the funds in the
earnings reserve.
Ms. Pitney replied in the affirmative.
Vice-Chair Micciche thought slide 16 had referred to AS
14.17.470 as though the BSA increase was required under the
statute. He did not see the information in the FY 15
supplemental budget, and asked for clarification.
Ms. Pitney stated that the slide listed the prescribed
amount when the statute was passed.
Ms. Pitney discussed slide 17 "FY08-FY16 Budgeted
Positions," which showed a bar graph of budgeted positions
from FY 08 to FY 17. She noted that FY 17 budgeted
positions were fewer than in FY 08, and as well state
population had gone up by 9 percent.
Ms. Pitney referred to slide 18, "FY08-FY16 State
Employees," which showed a bar graph of actual state
employment from FY 08 to FY 16. She noted that there was
only a small change when comparing FY 08 to FY 17. She
continued that not only had positions dropped to FY 08
levels, so had state employee counts. She clarified that
the state employee numbers represented people receiving
paychecks from the state. She pointed out a significant
reduction in workforce from the peak in FY 14.
Ms. Pitney referred to slide 19, "All Agencies Are Making
Reductions," which showed a bar graph illustrating
reduction by agency. She commented that the graph did not
include the increase in gasline investment, but noted that
it did normalize the governor's reduction for a change made
by moving the funding for the Division of Elections. The
funding normally created a biannual rise in the operating
budget. She explained that the administration had
normalized the spending by proposing to fund the division
through the capital budget, and leave a capital project
account open over time.
11:23:29 AM
Ms. Pitney discussed slide 20," UGF Agency Operating
Budgets," which showed a bar graph depicting agency budgets
from FY 08 to FY 19 in real dollars. She remarked that the
budget for FY 17 was back to the FY 10 level, and by FY 19
the budget would be back to the FY 08 level in terms of
real cost.
Ms. Pitney discussed slide 21, "FY2017 Limited Priority
Investments":
•DNR (DOR/DOL) Gasline Pre-FEED $38.3M
•DMVA Rural Engagement $1.3M
•In-house financial experts (non-UGF funding)
Ms. Pitney discussed the priority investments, and remarked
that the Department of Military and Veterans Affairs Rural
Engagement Initiative was a step towards getting
individuals into battalions to help with emergencies and
issues in the community that would lead to more involvement
in the National Guard.
Ms. Pitney commented that the administration wanted to
build additional financial expertise within the state
instead of spending two to three times the amount on hiring
outside financial advisors. She noted that the Permanent
Fund Protection Act had a large dependence upon managing
the state's existing wealth.
11:26:06 AM
Ms. Pitney discussed slide 22, "Statewide Obligations":
1. $73 million for oil and gas tax credits; plan
estimated $100 million annually assuming credits
reformed as proposed
2. Debt $218; plan anticipates increases due to
gasline, will use GO and PO Bonds
•School fund reimbursement
•GO bonds and other
3. Retirement plan is to finance actuarially required
contribution
4. Revenue sharing plan is $35 million (effective
6/30/16) allowing for $50 million payout. Plan
increases to $60 million annually
If oil and gas tax credits are reformed: $1,200
million to capitalize oil and gas tax credits
Ms. Pitney noted that the actuarially required contribution
to the state retirement plan was a 25-year scheduled annual
cost for the state to cover past service liability. She
remarked that currently the earnings on state assets were
higher than the state's cost of debt, and as the market
changed the state's ability to finance diminished. She
thought the state was still in a position in which
financing made sense given that the Permanent Fund
Protection Act relied on investment of the state's wealth
in the long-term. She added that revenue sharing was
another major component, and that the administration had
introduced a supplemental into FY 16 for a $50 million
payout to communities, with a plan forward to go to $60
million.
Senator Hoffman asked if Ms. Pitney could restate why the
state was dealing with supplemental funding, and if the
numbers she referred to were reflected in her overall FY 17
budget.
Ms. Pitney stated that the numbers were reflected in the FY
16 supplemental appropriation bill but not in the FY 17
budget.
Senator Hoffman wondered how revenue sharing would be
effected if the supplemental bill did not pass.
Ms. Pitney pointed out that the item was included in SB 139
(FY 17 operating budget).
Senator Hoffman discussed the revenue-sharing program,
which was heavily relied upon. He asked if the anticipated
revenues to pay for program were included in FY 17 revenue
forecasts.
Ms. Pitney responded in the affirmative.
Senator Hoffman asked for further clarification as to how
revenue sharing was proposed in the supplemental and
operating budgets. He stressed the importance of modifying
the program downward and ensuring that the state could
afford it. He had looked at the program extensively the
previous summer, and thought it was unaffordable to
increase it back to the $60 million level.
11:30:27 AM
Co-Chair MacKinnon clarified that the budget (presented for
FY 17) still needed an $80 million appropriation to
distribute, to be able to distribute $60 million in FY 18.
She reiterated the request for clarification on the
revenue-sharing program, as well as further understanding
of where the $80 million was located.
Vice-Chair Micciche referred back to slide 20, and
hypothesized that an additional overlay of revenue (in real
dollars) would be helpful for Alaskans. He thought the
services the state was able to provide in 2008 and 2009
were at much higher levels of revenue. He referred to the
significant reduction in revenue that was not reflected,
and thought it would show a more accurate picture of the
problem the state was facing.
Ms. Pitney thought Vice-Chair Micciche had proposed a good
idea.
Ms. Pitney briefly referred to slide 23, "FY2017 Capital
Budget," pointing out a $195 million in capital requests.
She was sure there would be another capital budget overview
in which the requests would be covered.
Ms. Pitney mentioned slide 25, "Funding Alignment for
Permanent Fund Protection Act." She stated that the act
discussed relevant appropriations, and would be expanded
upon at a later date when the full budget plan was
addressed.
11:33:22 AM
Co-Chair MacKinnon referred to a $30 million unallocated
reduction in the budget from the previous year. She had
asked the administration for a detailed report on how it
had implemented the reduction in the previous year's
budget. She asked for a briefing at a later date.
Ms. Pitney relayed that the requested information was
included in the information packet for the meeting. She
referred to page 6 the document "Fiscal 2017 Governor
Fiscal Summary" (copy on file); and pointed out the
highlighted column that showed the distribution of the $30
million unallocated reduction. She highlighted that there
was no distribution of the unallocated reduction to the
Judiciary or the Legislature, although it was allocated in
the executive branch. She directed attention to the column
on the right hand side that reflected which agencies took a
larger proportional share of the unallocated reduction. She
specified that an additional $200,000 had been reduced from
the DOA budget, and the reduction to DOC had increased by
$1.4 million (because of expected savings from Medicaid
expansion). She highlighted additional information on pages
7 through 16, which showed how the unallocated reductions
were distributed. She noted that all of the reductions were
base reductions to the agencies, and in addition the FY 17
budget had the second base reduction for $30 million. The
administration was waiting for the outcome of salary
contract negotiations, to see if any of the unallocated
reductions could be adjusted.
11:37:21 AM
Co-Chair MacKinnon referred to the Division of Elections
and potential savings that Ms. Pitney had mentioned.
Ms. Pitney clarified that there was no realized savings,
but moving the Division of Elections to be funded from the
capital budget would stabilize the operating budget.
Co-Chair Kelly discussed the upcoming schedule.
ADJOURNMENT
11:39:45 AM
The meeting was adjourned at 11:39 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012016 SFIN Overview Legislative Packet- Pitney.pdf |
SFIN 1/20/2016 10:00:00 AM |
Operating Budget |
| 012016 Senate Overview 1-20-2016 Governors FY17.pdf |
SFIN 1/20/2016 10:00:00 AM |
Operating Budget |
| SB 139 GOV Response to SFC Questions 1-20-16.pdf |
SFIN 1/20/2016 10:00:00 AM |
SB 139 |
| SB 139 SFIN GOV Response Attachement.pdf |
SFIN 1/20/2016 10:00:00 AM |
SB 139 |