Legislature(2021 - 2022)SENATE FINANCE 532
02/01/2021 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Office of Management and Budget - Governor's Fy 22 Budget Proposal - Continuation | |
| Legislative Finance Division - Overview of the Governor's Fy 22 Budget | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
February 1, 2021
9:01 a.m.
9:01:27 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator David Wilson
Senator Donny Olson (via teleconference)
Senator Bill Wielechowski (via teleconference)
MEMBERS ABSENT
Senator Click Bishop, Co-Chair
Senator Natasha von Imhof
ALSO PRESENT
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor; Alexei Painter, Director,
Legislative Finance Division.
SUMMARY
OFFICE OF MANAGEMENT and BUDGET - GOVERNOR'S FY 22 BUDGET
PROPOSAL - (Continuation)
LEGISLATIVE FINANCE DIVISION - OVERVIEW OF THE GOVERNOR'S
FY 22 BUDGET
Co-Chair Stedman noted that Co-Chair Bishop and Senator von
Imhof would be attending to other state business and would
not be present. The committee would hear a continuation of
the governor's proposed FY 22 budget by the Office of
Management and Budget (OMB) that had begun the previous
Friday. The committee would also hear an overview of the
governor's budget from the Legislative Finance Division
(LFD). He relayed that later in the week the committee
would consider more budget overviews. The subcommittees for
the operating budget would be formed within a couple of
days and would hopefully begin meeting by the end of the
week. He stated that the committee would diligently work
through the budget process to formulate conclusions and
solutions for the [state's] structural deficit over the
next couple of months.
^OFFICE OF MANAGEMENT and BUDGET - GOVERNOR'S FY 22 BUDGET
PROPOSAL - Continuation
9:04:33 AM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, discussed a continuation of the
presentation, "State of Alaska, Office of Management and
Budget, FY2022 Senate Finance Overview" from Friday,
January 29 (copy on file).
Mr. Steininger addressed slide 11, "Commerce, Community,
and Economic Development." He reported that the numbers for
FY 20 and earlier included appropriated supplementals. He
explained that FY 21 was reflective of the current budget
departments were operating under without any proposed
supplementals (referred to as management plan by OMB). The
FY 22 figures reflected the governor's budget proposal. He
noted that most of the graphs did not include duplicated
funds; however, duplicate funds had been included for a
couple departments where duplicate funds were material to
the departments' operation.
Mr. Steininger reviewed the high level FY 22 budget changes
for the Department of Commerce, Community and Economic
Development (DCCED) on slide 11. The governor's budget
would transfer the Alaska Development Team to the Office of
the Governor, which would eliminate two positions and
decrease the budget by $240,000 in undesignated general
funds (UGF). He detailed that the change would elevate the
economic development activity to a cabinet level position.
The governor's budget would also eliminate the last
remaining UGF named recipient grant under DCCED. The dark
blue portion of a graph on slide 11 reflected UGF, which
had been significantly higher in past years. He explained
that in the past there had been substantially more named
recipient grants that flowed through DCCED. The last
remaining grant was to the Alaska Civil Legal Services. The
entity had also received another named recipient grant
funded by a portion of court receipts designated by
statute.
Mr. Steininger continued to review budget changes to DCCED
on slide 11. The proposed budget deleted a vacant position
within the Division of Economic Development. He detailed
that OMB had asked agencies to look at positions that had
been vacant six to nine months or longer that they did not
have plans to fill but were still funded in the budget. The
idea was to trim unnecessary unfilled positions that
departments did not intend to fill in the future. The
budget would also eliminate three vacant Alaska Gasline
Development Corporation (AGDC) positions that met similar
criteria.
Mr. Steininger continued to review DCCED budget changes on
slide 11. The budget would replace UGF authority within the
Alaska Energy Authority (AEA) with Power Cost Equalization
(PCE) funds. The action would remove the last of the UGF
subsidies for AEA. Lastly, the proposed budget would add
two Regulatory Commission of Alaska (RCA) master analyst
positions, which would allow the RCA to better meet its
needs and objectives. He added that the positions would be
funded with receipts generated by the RCA.
9:08:02 AM
Co-Chair Stedman asked if there were any issues related to
the proposal to use PCE funds [in place of UGF for AEA]
shown in the second to last bullet on slide 11.
Mr. Steininger replied that the proposal reflected the use
of designated general funds (DGF) for a purpose that was
not specifically designated by statute; however, AEA's
broad mission related to PCE's intent to ensure access to
energy throughout the state. He noted there was nothing to
prevent the appropriation of PCE funds for the specified
purpose.
Co-Chair Stedman asked about the bullet regarding deletion
of vacant AGDC positions. He asked for verification that
there may be an upcoming proposal connected to AGDC.
Mr. Steininger replied in the affirmative. He elaborated
that elsewhere in the budget there was authority allowing
for AGDC to receive federal or other statutory designated
program receipts for the purpose of the first phase of the
Alaska LNG pipeline project.
Co-Chair Stedman stated that the topic represented a much
larger policy issue. He believed committee members would
want to have a separate discussion on the matter.
9:10:01 AM
Mr. Steininger highlighted slide 12, "Corrections." The
slide showed there had been continued investment in the
Department of Corrections (DOC) and all of the public
protection related organizations and agencies in the past
several years. The proposed budget included approximately
$4 million for the addition of 112 community residential
center (CRC) beds and GPS tracking for CRC residents. The
budget utilized federal and municipal man-day receipts, a
per-day charge assessed for inmates convicted of federal
and municipal crimes housed in state facilities. He
reported that when the state had reopened the Palmer
Correctional Center it had utilized an excess of the
federal man-day receipts in order to avoid general fund
cost. He elaborated that DOC generally collected more in
federal man-days than it had been budgeted in prior years;
the budget would shift to utilizing the man-days on an
ongoing basis as opposed to building up a surplus. The
proposal would use the receipts to offset general fund
costs.
Mr. Steininger continued to review the DOC budget on slide
12. The proposed budget would replace insufficient
Restorative Justice Account funds with UGF. He elaborated
that the annual transaction fluctuated from year-to-year.
The account was funded with Permanent Fund Dividends (PFDs)
garnished from people with felony convictions. The money
was allocated several places in the budget; however, the
source was volatile because the number of prisoners and the
PFD amount fluctuated annually. He reported that
collections in the fund were significantly lower in the
current year than in the previous year; however, the
collections in the prior hear had been substantially higher
than they had been historically. The budget included the
restoration of positions within the Palmer Correctional
Center, which would be necessary when the facility was
fully open and operational.
9:12:53 AM
Senator Wilson asked if the money appropriated through
federal/municipality receipts was enough to offset the cost
of reopening the Palmer Correctional Center. Alternatively,
he asked if additional general funds were needed.
Mr. Steininger stated the federal mandate money had covered
a significant portion of the cost. There was some UGF
associated with reopening the Palmer Correctional Center,
in addition to future operational costs. He would follow up
with the information.
Co-Chair Stedman noted that Senator Wilson should chair the
DOC budget subcommittee due to his background on the
subject.
9:13:56 AM
Mr. Steininger highlighted slide 13, "Education and Early
Development Non-Formula." He noted the information did
not include the K-12 formula, which would be detailed on
the following slide. He pointed to a peak in federal
receipts shown in light blue in a graph on the left. The
money reflected Coronavirus Aid, Relief, and Economic
Security (CARES) Act and other COVID-19 relief legislation
from the federal government that primarily passed through
the Department of Education and Early Development (DEED) to
school districts.
Mr. Steininger relayed that the proposed budget reduced
long-term vacant staffing due to travel reductions
resulting from the expanded use of teleconference meeting
technology. The budget would delete several vacant
positions within the Division of Libraries, Archives and
Museums. Additionally, the budget would eliminate a data
assessment contract that DEED had determined it was able to
produce in-house. The budget included savings from other
miscellaneous travel reductions and increased virtual work.
Co-Chair Stedman commented that when budget subcommittees
were underway, the DEED subcommittee would look at the
impact in revenue for the Division of Libraries, Archives
and Museums due to the lack of tourism in the state the
previous year and potentially in 2021. The subcommittee
would consider the division's progress in working to
increase visitors to the state's museums and libraries once
the tourism industry came back.
9:16:11 AM
Mr. Steininger displayed slide 14, "Education and Early
Development Formula." The funding primarily included K-12
foundation formula that went out to school districts. He
noted that the funding also included a couple of smaller
formula programs such as the Residential Schools Program.
He detailed that the proposed budget would remove funding
authority for one school that had been approved for a
number of years but had never been implemented within the
Anchorage School District. He reported that the budget
fully funded the foundation formula. He relayed that
changes in student count and demographics had reduced the
estimated amount to be paid out in the formula.
Mr. Steininger pointed to a table on the lower right of
slide 14, which provided a high level picture of the
student count and how it correlated with the basic need
requirement and funding levels. He highlighted a
significant reduction in the average daily membership (ADM)
of students in the classroom. He noted there was a
significant increase in the number of students enrolled in
correspondence programs, which were funded at a lower level
than the standard ADM. The change resulted in a net
reduction to the foundation formula of approximately $20
million, despite being fully funded.
9:18:02 AM
Senator Hoffman asked if Mr. Steininger knew the decrease
in student count for the coming year.
Mr. Steininger replied that the decrease in total ADM was
just under 2,000 as shown in the third row, third column in
the lower right table on slide 14. He deferred to DEED for
more specific details.
Senator Hoffman requested a historical five-year analysis
of student population data.
Co-Chair Stedman stated that it would be nice to have the
committee briefed on the status of schools and challenges
students had passing exams due to the pandemic. He spoke to
the concern about students falling back in grade levels or
missing substantial portions of their current grade in
K-12. He highlighted that education of children was one of
the state's most fundamental constitutional obligations.
9:19:48 AM
Senator Wilson asked if the regular ADM was determined at a
point in time or throughout the year.
Mr. Steininger clarified that the regular ADM was based on
fall projection counts. There was also a true-up period
conducted by DEED later in the year. He deferred to DEED
for any additional detail.
9:20:24 AM
Mr. Steininger discussed slide 15, "Environmental
Conservation." He reported that the Department of
Environmental Conservation was another area where efforts
had gone into finding savings within administrative
services. He elaborated that the savings were a result of
telework and changes in service delivery, which were
sustainable over the long-term. The proposed budget
included a fund source change from head tax receipts to UGF
for shellfish testing. The budget also included a reduction
to spill prevention/response account authority. He
explained that the account collected significantly less
than it was budgeted to expend. The reduction was necessary
to ensure the fund did not get emptied in the near future.
The change was part of a plan to taper down use of the fund
in order to ensure it remained solvent.
9:21:35 AM
Mr. Steininger turned to slide 16, "Fish and Game." He
pointed to an uptick in the light blue section of a graph
in the upper left of the slide representing federal funds.
He explained that the increase reflected moving some of the
Dingle Johnson and Pittman Robertson [federal] funds from
the capital budget into the operating budget. He detailed
that historically the funds had only been in the capital
budget; however, a significant portion of the funds were
used to support operational costs within the Department of
Fish and Game (DFG). He noted there had also been some
increases in Dingle Johnson and Pittman Robertson grants
coming from the federal government.
Mr. Steininger highlighted a proposal to replace UGF with
commercial fisheries program receipts. He elaborated that
enough receipts had been generated to offset some of the
UGF in their activities. He pointed out a change in the
Commercial Fisheries Division structure. The budget
consolidated the regional components into one, which
allowed for administrative efficiencies in money
management. He elaborated that the work division staff
performed crossed between various regions, which resulted
in budgetary tracking redundancies. The change would
increase efficiency and would still allow the division to
report on how much activity occurred in each region.
Mr. Steininger continued to review slide 16 and detailed
that the budget would reduce the salaries of Commercial
Fisheries Entry Commission (CFEC) commissioners based on
2018 legislation. The change would result in a decrease of
about $42,000.
Co-Chair Stedman stated there would be committee discussion
about the Dingle Johnson funds and the concept of moving
funds out of the capital budget. He noted the committee may
not agree with the idea. He stated a concern related to DFG
and the Department of Natural Resources (DNR) was the need
to keep the state's industrial and resource extraction base
going. He remarked that insufficient funds in DNR and DFG
would mean citizens would not be working around the state.
He reported that the committee would take a thorough look
at the issue.
9:24:25 AM
Senator Hoffman asked what the consolidation of the
Division of Commercial Fisheries' regional components
entailed.
Mr. Steininger described the consolidation as a technical
budget change. He detailed that money from the various
regions would be shifted into a single component. He
explained that the funds were currently in separate
budgetary components within the same appropriation. The
change would avoid numerous accounting transactions
associated with staff working across multiple regions. He
elaborated that currently, the division had to charge an
employee's time to the different projects and assign the
expense to the different budget allocations - the
accounting structure had to match the allocation structure.
The change would allow accounting efficiency and staff
would no longer have to worry about shifting funds between
the regions. Project level tracking would still be in
place, which would show the regions staff were working in,
where the projects were located, and what was receiving
funding throughout the state.
Senator Hoffman asked about the proposed replacement of UGF
with Commercial Fisheries program receipts listed as the
first bullet point on slide 16. He understood that in the
past the program receipts had been used in a variety of
ways - to get more information to enable the department to
better decide allocation issues. He was concerned that
taking the funds from the current use would put additional
hardship on the availability of adequate information to
make necessary allocation decisions. He wondered why
commercial fisheries were being targeted rather than sport
fisheries issues. He pointed out that both commercial and
sport fisheries provided jobs; however, the commercial
fisheries component was much larger and had bigger
financial impact to Alaskan citizens. He added that
citizens were heavily dependent on adequate information to
ensure the maximum allowed fisheries were harvested - fish
that may unnecessarily go up to spawn were monetized.
Senator Hoffman thought the decision may be short-sighted
in the state's long-term economy. He wanted to take a
strong look at the proposed replacement of funds. He
understood it was monetary; however, he pointed out that
per the state's constitution, there was an obligation to
adequately manage state resources. He opined that if it
meant general funds needed to be utilized, they should be
utilized.
9:28:45 AM
Co-Chair Stedman stated that Senator Hoffman may be
selected as the chair of the Department of Fish and Game
budget subcommittee.
Mr. Steininger addressed slide 17, "Office of the
Governor." The proposed budget included the transfer of the
Alaska Development Team from DCCED to the Office of the
Governor. Additionally, the budget would eliminate the OMB
analyst charge-back rate, which had been implemented
approximately two years back to charge for OMB analysts'
time. He detailed that the practice had generated more work
than benefit.
Mr. Steininger furthered that the budget would implement a
change in the way charges for central services across
departments were handled. For example, the Department of
Administration housed Shared Services and the Office of
Information Technology that delivered services on behalf of
other agencies and charged for the services. The charging
rates were volatile year-over-year because they were based
on actual costs that would be incurred. The administration
was looking at setting the charges in advance, using
lagging averages, but it would require the availability of
a bit of funding in the event the estimates could be
accounted for if they were slightly more expensive than
anticipated. The budget proposed using lapsing general
funds from the prior year to create a buffer to ensure the
averaging did not have a detrimental impact on programs or
central services.
Mr. Steininger explained that the proposal would allow
other agencies providing direct services, assurance of what
their bill for central services would be. He explained it
would avoid a situation where agencies received a surprise
billing mid-year; the change would reign in some control
over the predictability of some of the internal functions
of state bureaucracy. The funds would exist within the
Office of the Governor because it was not a central service
agency and it could monitor the activities.
Co-Chair Stedman asked if there should be consideration
given to eliminating the department in the spirit of
reigning in expenditures.
Mr. Steininger did not recommend eliminating the department
as its services were essential.
9:31:34 AM
Mr. Steininger pointed to slide 18, "Health and Social
Services Non-Medicaid." He highlighted a significant
spike in the light blue section of the graph representing
funding coming in from the CARES Act and other COVID-19
support sources. He pointed to the Division of Public
Assistance as the best example of an area where the move to
telework and the challenges operating government functions
with COVID had resulted in finding significant savings. As
departments had sent staff home, they had discovered paper-
heavy work processes did not work well. He explained that
the Department of Health and Social Services (DHSS) had
been able to find a solution that saved significant time in
terms of the way documents were scanned and processed. He
detailed that the department had discovered it could reduce
the 20 positions that had been added to address the backlog
within the Division of Public Assistance, in addition to
101 other position control numbers (PCNs). He noted that
the division had a fairly high turnover rate; therefore, as
the division worked through implementing the changes, it
did not intend to lay anyone off. The plan was to make the
reductions over the course of the current year and the next
year through attrition to get to a stable staffing load
that was able to do the work with all of the technologies
implemented by the department.
Mr. Steininger continued to review budget changes to the
DHSS budget. He highlighted a small reduction in the cost
of postage. He detailed that the Division of Public
Assistance sent a substantial amount of mail but moving to
online services had allowed significant savings in postage.
Mr. Steininger reported that within the Office of
Children's Services (OCS), the Circle of Support grant was
being replaced with direct case work. He explained that the
program involved working with families in their houses who
fell under the OCS services umbrella. The change would
allow a reduction in state general fund dollars and would
allow the department to claim federal dollars in addition
to maintaining direct intervention into households. The
budget included $2.4 million in federal receipts due to an
increase in subsidized adoption and guardianship. He noted
the change meant more children leaving foster care and
going into permanent homes or guardianships. He stated that
although it was a budget increase, it was a positive
increase to see.
Co-Chair Stedman noted that the following slide would
address the Medicaid portion of DHSS. He reported that
Senator von Imhof would chair the DHSS subcommittee. He
remarked that controlling the overall cost of Medicaid was
one of the committee's greatest challenges. The committee
would look at the offsets of the COVID-19 federal funds and
would keep an eye on the underlying numerics to avoid being
surprised when the COVID-19 funding disappeared. The
committee would task Senator von Imhof with several duties
concerning DHSS.
9:35:47 AM
Mr. Steininger looked at slide 19, "Health and Social
Services Continued Medicaid." He addressed a couple of
bullet points on non-Medicaid related items. The Division
of Juvenile Justice was eliminating positions associated
with the Anchorage School District Step-Up program. He
detailed that the program sent staff into Anchorage schools
and the activity would be handed off to the school
district. The budget would also eliminate a handful of
vacant Division of Juvenile Justice positions. He noted
that none of the positions were in the homes.
Mr. Steininger moved to changes related to Medicaid on
slide 19. The budget proposed using lapsing general funds
that were available due to a temporary increase in federal
match to phase-in Medicaid savings. He elaborated that
during the COVID pandemic, the federal government had
significantly increased the match in the Medicaid program,
which had saved the state roughly $14 million to $15
million per quarter. He explained that using some of the
UGF to implement a cost reduction in FY 22 would save the
state money in the FY 22 budget and would set a number
within the Medicaid program that the state needed to work
towards. He stated that it would make it easier to work
with all of the various third parties including subject
matter experts and federal partners if the state knew what
they were working towards. The change provided the
department with a glidepath and target to work towards in
the coming year.
Mr. Steininger remarked that changes in the Medicaid
program were complicated and time consuming and having some
certainty into the future about the target helped the
department work with its partners on the goal. There were
not specific items related to the reduction. The reduction
provided a short-term cost savings and a target in the
future for what the administration would like the Medicaid
program to be.
Senator Wilson asked if the budget item reflected a
temporary 6 percent increase in the Federal Medical
Assistance Percentage (FMAP) rate. He wondered how long the
increase would continue.
Mr. Steininger answered that the increase was 6.2 percent
through the end of the calendar year.
Senator Wilson asked how any of the state's waivers were
fairing and how they may continue and play a part in the
Medicaid budget. He asked if the budget item under
discussion included the cost reduction and a continued 6.2
percent decrease.
Mr. Steininger replied that DHSS was still working on
waivers granted prior to the pandemic. He elaborated that
changes to the Medicaid program had been severely
restricted during the COVID-19 pandemic, meaning the state
could not make any changes to eligibility, the service
population, or the benefits during the pandemic. He
clarified that any new waivers the department may have
worked to implement over the past year had been put on
pause.
Senator Wilson asked if the restriction was imposed by the
state or federal government. He asked if new waivers would
be put on hold until the end of the federal pandemic or the
end of the state emergency disaster declaration.
Mr. Steininger responded that the federal restriction was
in place during the period the state was receiving the
enhanced federal participation rate.
9:39:55 AM
Co-Chair Stedman asked for verification that Mr. Steininger
was telling the committee it would be very difficult to
make structural changes to Medicaid until after the
pandemic had passed.
Mr. Steininger answered in the affirmative.
Co-Chair Stedman believed Mr. Steininger was saying that
the administration was hoping that the dollar change in
some of the one-time funding mechanisms could be turned
into structural changes to hold the budgetary reductions.
Mr. Steininger agreed that changes to the [Medicaid]
program could not be made in the short-term. He explained
that because changes could not be made during the pandemic
and changes made outside of a pandemic took considerable
time, setting the expectation with a longer time horizon
provided some certainty in the negotiations necessary to
make the changes.
Co-Chair Stedman asked if the committee should anticipate
some statutory changes coming forward from DHSS to help
with the matter. He asked about the opinion and status of
the department in helping identify and solidify the
reductions.
Mr. Steininger deferred to DHSS on the specifics. The
department was working to understand what would need to be
done in order to effectuate the change. Changes in the
short-term were not possible due to federal restrictions
and much of department's work to find cost savings within
Medicaid had been set aside while the department focused on
COVID-19 response. As the department was able, it would
pivot to and renew some of the efforts; at that stage, the
administration would have more information about the
direction things were headed.
Senator Hoffman addressed the last bullet point on slide 19
and thought it seemed as if the administration was
proposing to use temporary federal funds to supplant the
general funds for $35 million. He asked if it was the
administration's intent to identify particular programs to
be funded by the federal government and implement changes.
He asked for verification that it meant the legislature
would see where the administration was contemplating
changing the statutes. He surmised that another solution
could be not identifying the areas and leaving them as
carte blanche on a $35 million allocation to a large
supplemental process. He asked if there would be targeted
utilization of federal match to supplant general funds.
Mr. Steininger answered that the federal match increase was
across the entire Medicaid program and was not targeted to
specific services within the program. The specifics on
reductions the administration would implement in FY 23 in
order to meet the target reduction of $35 million would
become available as the administration determined what
could be implemented.
9:44:16 AM
Senator Hoffman highlighted that if statutory changes were
not made, the legislature had an obligation to fund the
programs. He was concerned that if the changes had not been
made by FY 23, it would be necessary to come up with $35
million in general funds. He explained that it would appear
as an increase to the budget, while it was not really an
increase due to the actions being taken at present. He
reasoned that Medicaid changes would take place over time,
not overnight. He remarked that the current administration
would be around for the FY 23 budget. He noted that people
should be aware of the things he had mentioned. He stated
that a reckoning day was coming.
Co-Chair Stedman informed that the committee would be
discussing the options the committee had in trying to
position the state with the next presenter. He stated that
due to the state's cash burn rate there was some concern
that if there was too much optimism in reductions that did
not materialize a couple of years out, there would be less
ability to maneuver and meet the state's budgetary needs,
which would mean more tax burdens on the public.
9:46:12 AM
Mr. Steininger addressed slide 20, "Labor and Workforce
Development." The proposed budget for the Department of
Labor and Workforce Development (DLWD) included a proposed
reduction in general fund match for the Basic Support
Federal Grant. He detailed there was a reduction in the
match requirements, not the amount of money the
administration was choosing to match. The change allowed
the state to use fewer general funds to match the same
federal award. The budget included reductions in
commodities, travel, and office space at a total of
$214,000. Additionally, the budget would delete two vacant
administrative positions and one research analyst position.
He noted that the positions had been vacant for some time
with no intention to fill.
Co-Chair Stedman noted that Co-Chair Bishop was not present
and during the current meeting and would be tasked with
chairing the DLWD subcommittee. He remarked that Co-Chair
Bishop had been the commissioner of DLWD in the past and
was familiar with the department's budget concepts.
9:47:25 AM
Mr. Steininger looked at slide 21, "Law." He reported that
the Department of Law (DOL) had seen some increases over
the last several years with the effort to bolster
prosecution as a part of public protection investments. The
budget included $3 million UGF spread throughout the
Criminal Division to ensure timely processing and
prosecution of sexual assault and abuse cases. He shared
that the supplemental budget would include another $4
million associated with kickstarting some of the efforts to
get through prosecution backlogs. Additionally, the
administration was seeking partnerships with home rule
communities to support prosecution of misdemeanors.
Mr. Steininger elaborated that the work totaled about $1.3
million spent in the Criminal Division where the state was
prosecuting misdemeanors for communities that had the legal
authority to prosecute the misdemeanors themselves. He
noted there were a couple of communities that already did
the work in-house and the administration was looking to
create cost sharing agreements with communities that had
the authority to do the work but had chosen not to. He
added that the change would not result in stopping the
prosecution of misdemeanors.
Co-Chair Stedman remarked that the proposal had caught the
attention of some communities and he did not believe they
were very happy about the idea. He noted it would be
necessary for the committee to have the discussions moving
forward. He stated that the communities may have the legal
authority to do the work, but there were differences of
opinion on the proposal. He thought it was important to
keep an eye on the political directional change of the
federal government in relation to the state's natural
resources. He remarked that it was necessary to be
reasonably comfortable that DOL was in a position to defend
the state and its rights given at statehood.
9:49:55 AM
Mr. Steininger turned to slide 22 titled "Military and
Veterans Affairs" and highlighted a significant UGF
increase in the past (shown in the first row of the "Budget
Change Summary" table). He noted the increase was "a bit of
a misnomer" because in 2020 the State of Alaska
Telecommunications System (SATS) and Alaska Land Mobile
Radio (ALMR) had been transferred to the department from
the Department of Administration. He explained that the
increase reflected an organizational change as opposed to a
true increase. The administration was continuing the
organizational change by merging the two programs into
Alaska Public Safety Communication Services. He detailed
that the programs had been managed together for the past
several years and the change acknowledged that the programs
served a singular focus.
Mr. Steininger continued to review slide 22 and highlighted
the proposal to eliminate four positions that had been
vacant for some time, with no intention to fill.
Additionally, there were a couple of areas where reductions
of just under $200,000 could be made based on investigating
prior year spending. He noted that the administration
expected departments to investigate their expenditures
annually to determine what they actually needed.
Co-Chair Stedman asked why the reduction had not been made
the previous year.
Mr. Steininger replied that he did not believe the
department had identified the specific areas to reduce the
previous year.
9:51:47 AM
Mr. Steininger addressed slide 23, "Natural Resources." He
highlighted there had been a reduction in UGF spending in
the Department of Natural Resources (DNR) since its peak in
FY 15. The budget proposed utilizing lapsed fire
suppression funding to support fuel mitigation and cutting
fire breaks with the goal of lower fire years in the
future. He detailed that it had been a low fire year and
the administration was expecting there to be some money
left over at the end of the current fiscal year. The budget
included a $250,000 investment in park ranger law
enforcement for the replacement of backstock of vests and
other equipment used in the field. The budget offset UGF
with program receipts generated by Division of Oil and Gas
and the Division of Mining, Land, and Water. He elaborated
that an analysis of the divisions' collection history
showed the divisions could support themselves with a bit
less UGF. Additionally, the budget included a $100,000 UGF
reduction, which would true-up an increment from the
previous year for Federal Plan Review based on reduced
travel and services.
Mr. Steininger noted that while other slides had included
supplemental appropriations, slide 23 did not include the
cost of fire suppression because it was wildly variable and
would detract from the ability to see trends in DNR's
funding.
Senator Wilson noted that in past years there had been a
significant fire suppression cost. He remarked that
approximately 75 percent of the cost was reimbursable by
the federal government. He wondered when the funds might be
returned to the state.
Mr. Steininger noted that federal reimbursement for fire
suppression cost took several years. He stated there was a
substantial lag between the state's budget process and when
the federal funds were received. He explained that prior
supplementals were set at an amount the administration
believed would be required from UGF and the subsequent
true-up period took some time. He added that DNR tracked
incoming federal funds and could provide reports to show
reimbursement received by the state for prior fire years.
9:54:59 AM
Mr. Steininger turned to slide 24 titled "Public Safety"
and pointed out increased UGF investment in public
protection depicted in a graph in the upper left of the
slide. The proposed budget included approximately $1.7
million UGF. He reported that positions had been added in
the FY 21 budget that had been funded at about 75 percent
to acknowledge the time it took to recruit new troopers. He
elaborated that the Department of Public Safety (DPS) was
actively recruiting troopers and the department believed it
would have all of the trooper positions filled and would
need the full funding for FY 22.
Mr. Steininger continued to address slide 24. He
highlighted numerous reductions to non-law-enforcement
staffing, travel, commodities, and contractual savings
including savings due to remote videoconferencing
implemented due to COVID-19. The budget would eliminate two
vacant building plan review positions that had never been
filled.
9:56:23 AM
Mr. Steininger moved to slide 25 titled "Revenue" and
pointed out that the Department of Revenue (DOR) received a
small amount of UGF in comparison to other funding. He
explained that other funding represented the management
fees on the state's financial investments. He highlighted a
decline in the amounts in FY 22 as the Alaska Retirement
Management Board (ARMB) was able to implement about $10
million in investment management savings through the way
DOR handled the investments. The budget included a
restructuring of the way the state charged for management
of some of its funds. He elaborated that instead of using
UGF to pay for management of the funds, DOR intended to
charge management fees to the fund it was managing. The
change resulted in a reduction of $1.4 million UGF and an
increase in the fund sources coming from the funds DOR
managed.
Mr. Steininger continued addressing proposed budget changes
within DOR. He highlighted that the current Division of
Child Support case management system was the old legacy
management system on the state's mainframe, which was
expensive to maintain. The division was moving to a web
platform as an interim step to modernizing the system.
There was an associated capital project request, which
would provide the money for implementation of a new
management system. The budget would also eliminate three
vacant positions and implement a rate change and DOR's
ability to collect federal funds for indirect costs.
Additionally, the budget included the implementation of
incentive compensation for Alaska Permanent Fund
Corporation (APFC) investment managers at an estimated
maximum cost of $890,000.
Co-Chair Stedman asked if the incentive compensation plan
was new position by the administration.
Mr. Steininger relayed that the plan had been discussed for
several years and the administration was supporting the
implementation of the plan. He elaborated that APFC had
been advocating for the change for many years. The
administration saw the value of implementing the plan for
staff retention purposes.
9:59:18 AM
Mr. Steininger discussed slide 26, "Transportation and
Public Facilities." He pointed out that the graph in the
upper left included duplicated funds because much of the
funding for the Department of Transportation and Public
Facilities (DOT) came from capital projects that showed up
into its operating budget as duplicated funds.
Additionally, DOT managed the Division of Facilities
Services, which had informally existed for a couple of
years as the administration had been centralizing
maintenance of state facilities. The budget formalized the
division in the budget structure, which showed the
maintenance of state facilities separated out on its own.
The budget also included transferring the remaining public
building facility activities that existed within the
Department of Administration to the new division. He
highlighted that it was an area where the administration
was utilizing a large amount of one-time funding from the
CARES Act.
Mr. Steininger detailed that one of the aspects of the
CARES Act was funding from the Federal Aviation
Administration that went to DOT and could be used for
operational costs of state airports. He explained that the
federal funding replaced a substantial amount of UGF used
for the maintenance of state airports. He relayed that the
federal funds under discussion would likely expire at the
end of FY 22; however, more money had come in under
subsequent federal relief packages that could displace
costs at DOT. The administration was still investigating
how it could utilize the federal funding most effectively.
Under the specific situation, it was allowing the state to
keep some money in state savings accounts rather than
expending it. The administration acknowledged the situation
was short-term and it would have to find a way to fund the
activities going forward.
Mr. Steininger continued to review the DOT budget on slide
26. The proposed budget would reduce the Alaska Marine
Highway System (AMHS) funding to a baseline of essential
service that equaled the governor's proposed funding level
in FY 21. There was a projected shortfall in motor fuel
tax, which would require a backfill of about $500,000 in
UGF. He reported that the department still had a couple of
non-state owned roads it was performing maintenance on,
which would be ceased; communities would be required to
take over the maintenance costs.
Co-Chair Stedman thought the committee would need to
examine the AMHS and the administration's definition of
"essential service level." He remarked that the definition
of essential service level was likely up for debate
depending on if a person accessed the Sterling Highway, the
Glenn Highway, or the Alaska Marine Highway. He pointed out
that people would rank the highways a little differently
depending on where they lived. He pointed out that one
community had been completely left out of the proposed AMHS
schedule. He was expecting some adjustments to come forward
in the ferry schedule, which may impact the request and
need for general funds for AMHS operations. He stated that
most likely the committee would hear a presentation from
Admiral [Tom] Barrett or another working group member
familiar with the issue. He noted that the working group
study had been conducted the past summer and fall and he
believed it contained requests the committee may find
interesting. He noted there may also be some things that
were the opposite. He shared that he and Senator Bishop
would chair the DOT subcommittee.
10:04:09 AM
Senator Hoffman looked at the proposed $8.3 million
reduction to AMHS and asked about the size of the reduction
in terms of percentage.
Mr. Steininger responded that he would follow up with the
information.
Senator Hoffman looked at the proposed reduction of $25
million, which would eliminate maintenance on non-state
owned roads. He asked for verification that the proposal
meant the state would no longer maintain any non-state
owned roads.
Mr. Steininger confirmed that it was the intention of the
proposal.
Co-Chair Stedman relayed that roads would be discussed by
the [DOT] subcommittee. He believed the full committee
would discuss the subject of transportation more than once.
He noted that the list of roads would be identified.
Senator Olson referenced the road between St. Mary's and
Mountain Village and asked if it would no longer be
maintained by DOT.
Mr. Steininger replied that he would get back to the
committee with an answer.
Co-Chair Stedman asked Mr. Steininger to get back to the
committee with a list of roads that comprised the $25
million reduction.
Senator Olson noted that the St. Mary's airport was
sizeable and had been used for 121 carriers in the past and
jet traffic, while the airport in Mountain Village was
fairly small and only accommodated smaller bush planes. He
remarked there had been a fatal accident in the past couple
of years in the area that made the issue very concerning.
Co-Chair Stedman believed many committee members would not
be familiar with a substantial number of the roads; it
would be necessary to bring up the familiarity of the
different areas across the state. He assumed the roads were
spread all over, including Anchorage.
Mr. Steininger replied that he would follow up with an
answer. He clarified that the proposal would only apply to
non-state owned roads where the state did not have a
maintenance agreement.
10:07:14 AM
Senator Hoffman requested a list of roads that were not
state-owned and had maintenance agreements. Additionally,
he wanted the list to include the maintenance costs.
Co-Chair Stedman asked to receive the information for the
DOT subcommittee and full committee. He wanted a holistic
picture of the roads DOT was currently providing
maintenance on, including those with and without
maintenance agreements.
Mr. Steininger addressed slide 27, "University of Alaska."
He reported that FY 22 was the final year of the compact
agreement with the university. In total, the compact
reductions represented $70 million [over a three-year
period]; the total reduction in FY 22 was $20 million. The
budget also included the transition of the University of
Alaska (UA) Foundation to a nonprofit structure. The change
did not eliminate the UA foundation, but moved the
independent organization off of the state's budget.
10:08:42 AM
Mr. Steininger highlighted debt service paid by the state
over the past decade on slide 28. There was a decline from
FY 18 to FY 21 and a bit of an increase going into FY 22.
The School Bond Debt program was funded at 50 percent,
which was the level funded in FY 20. The increment
represented about $12.5 million UGF and $29.3 million DGF.
There was an associated fund capitalization of the Regional
Educational Attendance Area (REAA) Fund at 50 percent of
the statutory calculation.
Co-Chair Stedman recalled that the committee had
recommended full funding of debt reimbursement for the past
couple of years and was not in policy alignment with the
administration. He stated that the committee would discuss
the topic and the broader state debt issue at the table.
The committee would decide its collective position and
would forward it to the Senate floor. He remarked that the
decision may or may not align with the administration's
position. He believed there should be statutory changes in
place if the policy direction changed. He elaborated that
the analysis and public discussion should take place and a
potential change in policy direction should be done
uniformly by the administration and legislature, which had
not been done. He reiterated that the item would be
considered and decided upon by the committee. He stated
that the administration's position on the item was clear.
10:11:02 AM
Senator Hoffman emphasized that the bond indebtedness was
real debt that had to be paid. He characterized the
reduction of the state's commitment by 50 percent as a cost
shift to local governments. He stated that combined with
COVID and other problems facing local governments it would
be very difficult for them to address. He stated that many
districts, depending on their financial position, would
have a very difficult time absorbing the unanticipated
budget increase caused by the state's reduction to its
obligation. He believed it was the state's statutory
obligation to pay the debt. He agreed with Co-Chair Stedman
in that the administration should submit legislation if it
wanted to reduce the school bond indebtedness by 50
percent.
10:12:23 AM
Mr. Steininger highlighted a graph and table on slide 29
showing state assistance to the retirement program. He
reported that the administration had proposed legislation
associated with the way the program was financed. He noted
the legislation would be discussed separately at another
time. He briefly explained that the legislation would shift
the cost from the state assistance line item within the
budget and allowed for charging to federal programs. He
reviewed two other statewide budget items on slide 29. He
explained that community assistance was funded based on a
statutory calculation [of PCE earnings] which deposited
about $12.4 million into the fund. Oil and gas tax credits
were funded at the statutory minimum using $60 million in
Alaska Industrial Development and Export Authority (AIDEA)
receipts.
Co-Chair Stedman stated that the committee would address
the administration's proposal to use AIDEA receipts. He
remarked that the decision would be made by the legislature
as the appropriating body. He asked Mr. Steininger to
review the updated slides OMB had compiled based on
questions from the committee. He suggested that the
committee may want LFD to do some work on some of the
subjects for further clarification as the committee tried
to sort through the policy issues for a foundation going
forward.
10:14:04 AM
Mr. Steininger addressed a compilation of slides titled
"SFIN OMB Budget Overview Addendum" (copy on file). He
addressed slide 1 titled "Corrected: Budget Cost Drivers,"
which corrected an error in the presentation provided the
past Friday. He detailed that the state assistance to
retirement increase had been misstated on the original
slide. He clarified that about $173.1 million in UGF
reductions from FY 19 to FY 22 had been required to
maintain a flat budget over the given time period.
Co-Chair Stedman surmised that the [FY 22] budget was up
$200 million from the start.
Mr. Steininger agreed.
Mr. Steininger moved to slide 2 titled "FY22 UGF Operating
Budget Items." The swoop graph included the statutory PFD
at the request of Senator von Imhof to show its size in
relation to other agency spending.
Co-Chair Stedman stated that the committee would ask LFD to
add numerics to the graph and potentially percentages and a
table as a reference sheet. He believed the information
would be beneficial in order to see the magnitude of the
different departments when the legislature started talking
about reductions and other.
10:15:47 AM
Mr. Steininger looked at slide 3, "State of Alaska Total
Budget," which had been updated at the request of Senator
von Imhof to include PFD payments to a summary of the
operating and capital budgets.
Co-Chair Stedman looked at the total budget line and asked
for verification that it showed a significant increase from
FY 21 to FY 22.
Mr. Steininger replied that because the appropriation for
the PFD in FY 21 did not follow the statutory calculation,
there was a significant change from FY 21 to FY 22 for the
payment. The governor's proposed FY 22 budget included the
statutory calculation of the PFD.
Co-Chair Stedman asked if the number included the extra $2
billion on top of the $3 billion extraction from the ERA.
Mr. Steininger answered that the slide did not appear to
include the amount in the FY 21 column. The number was only
included in the FY 22 column.
Co-Chair Stedman stated that in addition to the 5 percent
draw of roughly $3 billion, the additional draw was another
$2 billion. He asked if the $3 billion or the $5 billion
showed on the rates of change from FY 21 to FY 22 on slide
3.
Mr. Steininger responded that the slide showed proposed
expenditures in FY 22, not necessarily how the revenue
sources came in. An illustration of the proposed sources of
money and draws was included in slides depicting the fiscal
summary and its impacts on state reserve accounts (slides
shown in the beginning of the presentation).
Co-Chair Stedman asked for verification that the
approximate net change from FY 21 to FY 22 was $1.4
billion.
Mr. Steininger replied affirmatively.
Co-Chair Stedman shared that the committee would spend
substantial time on the state's cash position and burn
rates to try to repair the structural deficit before the
state ran out of cash. He intended to work with LFD to
clarify the information for the public. He wanted the
information to be identifiable. He noted that often
information was developed for the use of the legislature
and it could be difficult for the public to decipher. He
wanted it to be apparent how much money was coming in and
going out and what the fund sources were.
10:19:48 AM
Mr. Steininger advanced to a table on slide 4 titled
"Fiscal scenario comparison." The slide had been produced
at Co-Chair Stedman's request to show a comparison between
the first five years of the administration's 10-year plan
(shown in blue) and a status quo budget (shown in brown).
The administration's proposal identified sources for the
surplus coming from an ERA draw and a small draw from the
CBR. The status quo did not reflect those funding sources.
He noted that the status quo deficit was greater than the
balance of the CBR. Under a status quo scenario, a fund
source would need to be identified. He pointed to FY 23
through FY 25 and noted a difference in the deficit. He
stated that the combination of the administration's
proposal to moving to a 50/50 PFD, FY 22 operating budget
reductions, and planned targets in future years did not
close the entire deficit; however, it did close a large
portion at about $600 million.
Co-Chair Stedman emphasized that the legislature wanted to
close the deficit sooner rather than later. He drew
attention to the governor's plan in blue on slide 4. He
stated his understanding that the administration wanted to
land at about $3.6 billion in operating agency
expenditures. He elaborated that if the $400 million in
budget reductions was not attained, the state would be two
more years into the situation at a weaker cash position and
with less flexibility to solve the problem.
Co-Chair Stedman wanted the committee to consider that the
proposed $400 million reductions would not be obtained and
what the state would do under the circumstances. He relayed
that the committee had requested policy change
recommendations from the administration in the form of
legislation or other to materialize the $400 million. The
committee had also asked colleagues to bring any ideas for
reductions forward. He pointed out that it took time for
proposals to get through the legislative process and most
were not successful because they did not work and did not
get through both bodies and obtain a signature from the
governor.
Co-Chair Stedman believed it would be a mistake to assume
the legislature would deliver $400 million in reductions
when there had been virtually zero after looking at the
legislature, the governor's office, and the courts. He
pointed out that the state had merely been treading water
and reductions that had been made had been eaten up by
other increments. He noted that two years earlier, the
legislature had taken recommendations from Mr. Steininger's
predecessor at OMB in good faith and the reductions had all
been added back five months later.
Co-Chair Stedman stated that the FY 21 budget had been
status quo. He elaborated that the legislature had worked
on getting some expenditure reductions, which could be seen
in the historic numbers. He believed it was necessary to
recognize that the ability to reduce the budget by $300
million or $400 million was minimal. He stressed it was
necessary to prepare the state for the inevitability. He
spoke against ignoring the situation and handing the next
governor less cash and a big hole.
10:24:48 AM
Co-Chair Stedman continued his remarks. The committee would
ask LFD to unravel the one-time funding, including
[federal] COVID funding to take a look at "how ugly the
problem actually is" and get it out on the table to start
having the difficult conversations. Difficult conversations
could include making decisions on whether to "loot" the
Permanent Fund, tax citizens, or start closing down
departments. He noted that Mr. Steininger had indicated
earlier in the meeting there was not interest in closing
down the governor's office. He speculated there would be
equal resistance from all other departments. He
communicated that the committee was open for business and
ready to listen to reduction ideas, but the proposals had
to be deliverable. He highlighted an earlier comment by
Senator Hoffman that the reductions should not be added
back in the supplemental several months later.
Co-Chair Stedman stressed that the state did not have the
cash position to procrastinate for another two years. There
would be some hard discussions and tough decisions at the
table. He hoped the Senate Finance Committee would lead in
the solution. He clarified that the solution would not be a
utopia with endless dividends for everyone and no taxes
because that was nonexistent. He emphasized that the
legislature needed to deliver services, a dividend, and not
deplete the state's fiscal position for future generations.
The committee would take the administration's $3.612
billion target in good faith, but until there were
reasonably attainable concepts presented to the committee,
he believed it would be foolish to go down the road
assuming the reductions would materialize.
Co-Chair Stedman was not discouraging the administration
from bringing reductions forward. He shared that all
subcommittee chairs would be asked to review the budgets
and bring back deliverable changes to hold costs down. He
expected some small changes but nothing significant that
would eliminate the state's [fiscal] problem. He stated
that each committee member had their own opinions, and the
committee would work together collectively and with
colleagues to try to solve the problem. He believed if
there were $300 million to $400 million in attainable
reductions, the proposals would already be on the table in
the form of legislation or talked about in concept form by
the caucuses. As far as he knew, the proposals did not
exist.
Co-Chair Stedman appreciated the hard work that the
administration had done on the ten-year plan. He relayed
that unfortunately the committee would throw the proposal
out the window and focus on a two to three-year plan to try
to get the state "out of this mess." The committee would
use FY 24 and FY 25 for a base target and back two to three
years. He was not interested in looking at what the state
had done 10 years earlier when he and Senator Hoffman had
left the committee chairs with $16 billion in savings. He
continued that the money was now virtually gone, with
nothing but a big hole remaining. The legislature had been
able to craft a significant savings plan 1.5 decades back
that had put the state in the strongest fiscal position of
any state in the union. He stressed that it was now one of
the weakest. He stressed the need to change the situation.
10:29:05 AM
Co-Chair Stedman emphasized the need to protect the
integrity of the Permanent Fund for future generations,
while devising a solution to the state's fiscal problem. He
stated it was possible to argue from multiple directions on
the Permanent Fund, but the most conservative approach was
ensuring there was money in the fund's corpus that could
not be spent by the legislature without a vote of the
people. He was not interested in a solution that liquidated
the Permanent Fund, which he stressed was not a solution.
Co-Chair Stedman reiterated that the committee would have
the difficult discussions and it was open to all ideas. He
hoped to work the state "out of this mess" over the next
two to three years. The committee would hear the governor's
bill on his recommendations of the dividend rewrite. He
elaborated that the committee would discuss the math and
the 50/50 split. He believed there would be some changes
and modifications. He hoped the committee could make it
work, which he believed would be good. He stated it was not
possible to fix the problem without dealing with the 40
year-old formula. The committee would be reconstructing
some of the documents looking back three to four years and
forward roughly the same timeframe to work on solving the
problem.
Co-Chair Stedman noted that the committee had the
experience and advantageous geographic dispersal to deal
with the budget situation. He reported that committee
members would pitch in and work collectively together to
devise a solution. He was doubtful that the $3.6 billion
would materialize, but the committee would do its best.
10:31:47 AM
Mr. Steininger turned to a table on slide 5, "PFD
Scenarios," which included data requested by Senator
Hoffman to illustrate the impacts of various PFD proposals.
The top of the table showed available revenues and the
bottom showed various proposal options ranging from current
statute, the proposed 50/50 dividend, and the proposed
50/50 dividend happening a bit earlier. He believed the
timing aspect had been part of the nature of a question
posed the previous Friday. The bottom of the table showed
the amount appropriated in FY 21 and how it looked going
into the future.
Co-Chair Stedman stated that the committee would work on
some of the scenarios (the 50/50 split and status quo) and
more going forward. He wanted to work collectively with
committee members on a full range of options in order for
members to understand the likely financial outcome from any
political position. He wanted members to be informed of the
impacts of whatever policy they wanted to advocate for. He
stated that members were all free to advocate for whatever
policy they wanted, including the liquidation of the
Permanent Fund. He noted the particular position would be
problematic at the committee table.
10:34:00 AM
Mr. Steininger addressed a summary table on slide 6,
"Department PCN Summary." The table showing all departments
listed together had been requested by Co-Chair Bishop. He
detailed that Co-Chair Bishop had asked why the total of
all PCNs from each of the slides had not been the same as
the total on the department operating level slide. He
explained that there had not been independent slides for
the legislative and judicial branches. He clarified that
the addition of those numbers resolved the discrepancy in
the numbers Co-Chair Bishop asked about the previous
Friday. The slide showed PCN changes from FY 19 to FY 22 by
department, summarizing information from earlier slides.
Co-Chair Stedman remarked that the information was
reflected in the mostly flat budget in terms of employee
count and cost. He thanked Mr. Steininger for his
presentation. He acknowledged there would be some
differences of opinion on policy, which was normal. He
communicated that the committee worked collaboratively with
OMB. He noted that there was little disagreement between
OMB and the Legislative Finance Division (LFD) on the
financial information. He remarked that there was some
sparring back and forth occasionally, but there was general
alignment on the holistic view of the state. There was a
difference from time to time on how to reach solutions;
however, the goal was to eliminate the structural deficit
through budget reductions, other revenue replacements, or
other. He stressed that it was not possible to continue
operating the same way for another decade.
10:36:29 AM
AT EASE
10:38:15 AM
RECONVENED
Co-Chair Stedman relayed that the director of LFD would
provide an overview of the governor's FY 22 budget to the
committee. He explained for the public that LFD was the
legislature's nonpartisan financial arm. He detailed that
the division provided information to the legislature
"straight up" in a nonpartisan manner. He had asked LFD to
take a hard look at any one-time funding issues for the
committee to clearly identify. He asked LFD to work with a
base number in order to work towards closing the fiscal
gap.
^LEGISLATIVE FINANCE DIVISION - OVERVIEW OF THE GOVERNOR'S
FY 22 BUDGET
10:39:26 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
introduced the LFD staff and their roles.
Mr. Painter provided a PowerPoint presentation titled
"Overview of the Governor's FY22 Budget" (copy on file). He
began with a presentation outline on slide 2:
? Alaska's Structural Budget Deficit
? Legislative Finance's FY 22 Budget Baselines
? Governor's FY 22 Proposal and FY 21 Supplementals
? Governor's 10-Year Plan
10:41:50 AM
Mr. Painter addressed slide 3, "Alaska's Structural Budget
Deficit." He reported that FY 21 was the ninth straight
year of fiscal deficits for the State of Alaska. Oil
revenue in FY 21 was projected to be the lowest since FY 78
in nominal terms (the year the pipeline began operating)
and FY 75 in real terms, which was adjusted for inflation
(the beginning of pipeline construction). He highlighted
that the unrestricted general fund (UGF) budget had been
reduced significantly from $7.8 billion in FY 13 to $4.5
billion in FY 21, a decrease of 43 percent. However,
despite the large reductions, budget reserve balances
dropped from over $16 billion in FY 13 to about $900
million at the end of FY 21. Consequently, as a result of
borrowing to cover deficits over the past nine fiscal
years, the General Fund was projected to owe the
Constitutional Budget Reserve (CBR) $12.9 billion at the
end of FY 21.
Co-Chair Stedman noted that the debt owed to the CBR was
automatically swept into the account, but there was no
interest charge or timeline. He stated that technically the
money was owed.
Mr. Painter agreed. He explained that the debt owed to the
CBR resulted in the General Fund sweep, a concept the
committee had discussed at length over the past several
years.
10:43:28 AM
Mr. Painter looked at a bar chart on slide 4, "Alaska's
Structural Budget Deficit (Cont.)" showing the state's UGF
revenue from FY 12 to FY 22. The chart did not include the
Permanent Fund (percent of market value (POMV) or Permanent
Fund Dividend (PFD)). The chart provided a picture of the
level of decline. He highlighted that FY 12 was the last
year the state had a balanced budget and petroleum revenue
had been nearly $9 billion, which had dropped in FY 15 to
under $2 billion and under $1 billion in FY 21. There was a
brief increase in FY 18 and FY 19 where petroleum revenue
had increased to about $2 billion. He explained that the
decline was a leading cause of the state's current fiscal
situation.
Mr. Painter spoke to a bar chart showing how the state's
UGF budgets had changed over the same period from FY 12 to
FY 22 on slide 5. He noted that the data included the PFD.
He pointed out that the peak year for agency operations was
FY 15 at about $4.5 billion, while the governor's proposed
FY 22 budget included $3.8 billion. Statewide items had
peaked in FY 14 and the capital budget had peaked at over
$2 billion UGF in FY 13. He would provide more detail on
agency operations in the coming slides.
10:44:55 AM
Mr. Painter moved to a chart on slide 6 showing the state's
UGF revenue and budgets from FY 12 to FY 22. The chart
showed that FY 12 was the last year of balanced budgets,
followed by annual deficits thereafter. The chart showed
that the legislature enacted a significant deficit filling
revenue measure - the POMV draw from the Permanent Fund -
in FY 19. The measure significantly reduced the deficit;
however, a deficit had persisted in each fiscal year since
the measure had been enacted.
Mr. Painter advanced to a bar graph on slide 7 titled "UGF
Agency Operations Budget Changes, FY15-22." He noted that
the orange portion of the bar reflected a consolidation of
several small agencies for the sake of simplicity. He there
had been annual cuts from FY 15 to FY 18 down to about
$3.86 billion of agency operations in FY 18. The number had
increased slightly in FY 19 and due to one-time spending
for the COVID-19 pandemic. The governor's FY 22 budget was
essentially back to the FY 18 level. The trend was four
years of continued cuts that had somewhat leveled off. He
noted there were some increases that had been reversed and
the budget had not really changed from the FY 18 level.
10:46:40 AM
Mr. Painter spoke to a graph showing savings balances in
the CBR and Statutory Budget Reserve (SBR) from FY 12 to FY
22 on slide 8. The balances peaked at over $16 billion in
FY 13. He relayed that LFD projected the CBR balance would
be about $900 million at the end of FY 21, while the SBR
was completely empty. All of the reductions to the CBR
balance represented by the blue section of the bars,
reflected a constitutional debt the General Fund owed to
the CBR.
Mr. Painter turned to a graph illustrating where agency
operations reductions had been taken on slide 9. There had
been significant reductions in agency operations of about
11 percent or just over $500 million; however, the
reductions had not been evenly distributed across agencies.
The state's public protection agencies including the
Department of Public Safety, Department of Corrections,
Department of Law, and the Court System, had increased by 6
percent since FY 15. He reported that the K-12 education
formula had been stable at the same base student allocation
through the same period. Consequently, there had been only
minor reductions to education funding, primarily due to
one-time funding in the FY 15 budget that was not
replicated in FY 21 due to the governor's veto. There had
been a 6 percent reduction to the Department of Health and
Social Services, which would have been larger if not for
the one-time spending due to COVID-19. There had been
significant reductions to Medicaid and other areas for a
total of about $77 million. He reported that all other
departments were down collectively 35.6 percent or $441
million. He detailed that the smaller agencies had borne
the vast majority of the agency operations cuts over the
past seven years. As a result, there was less room to
continue to reduce those budgets going forward because they
had already been reduced by over one-third.
Co-Chair Stedman asked for verification that DHSS and DEED
were formula driven and required statute change "to get any
more out of it."
Mr. Painter answered in the affirmative. He noted that the
K-12 formula had not been revised during the period of
budget reductions [from FY 15 to FY 21]; therefore, the
Base Student Allocation (BSA) was the same as it had been
in FY 15 and the formula itself was largely unchanged.
10:49:37 AM
Mr. Painter turned to slide 10, "LFD's Budget Baselines."
He shared that LFD had developed baselines to create a
clean starting point for the governor's budget rather than
comparing it constantly to prior years that were often
distorted by one-time items such as COVID-19 spending in
the FY 20 and FY 21 budgets. He explained that when using
those as points of comparison it exaggerated the changes
proposed by the governor because many were the end of one-
time items appropriated in the last year. The two baselines
were the current policy scenario and current law scenario.
The two scenarios used the same amount for agency
operations. He detailed that the scenarios used the
adjusted base, which removed one-time items and was
typically used as the clean starting point for
subcommittees.
Mr. Painter noted that the one change LFD had made to the
current policy and current law scenarios was to factor in
changes to student counts and how it impacted the K-12
formula. He noted that it did not reflect a policy choice
by the governor, and it should not credit or blame him for
the change since it was formula driven. The current policy
scenario assumed that like in FY 21, the legislature would
appropriate a PFD of $1,000 and there would be no UGF
funding for school debt, REAA Fund, community assistance,
and oil and gas tax credits because there was no UGF for
any of the items in the FY 21 budget, largely due to the
governor's vetoes. The current law scenario assumed statute
would be followed for statewide items, which included a
statutory PFD, full funding of school debt, REAA Fund,
community assistance, and oil and gas tax credits. He would
provide more detail on the statewide items in the next
slide. The statutory PFD was projected to be about $2
billion, paying about $3,050 per recipient and the
statewide items that were unfunded in FY 21 were estimated
to be about $168.5 million UGF in FY 22.
10:52:33 AM
Senator Hoffman asked for verification that the legislature
had fully funded the REAA Fund in the past two years and
the governor had vetoed the funding.
Mr. Painter answered in the affirmative.
Senator Hoffman stated that the governor had not funded the
REAA Fund in his proposed FY 22 budget. He highlighted that
providing the funding complied with a decree to resolve the
Kasayulie Case. At some point he believed parties involved
may say that the state was not in compliance with the case.
He believed the issue may come up in rural Alaska. He
explained that the absence of funding did not allow for
rural schools to be built, which was a decree the state had
signed on to. He had great heartburn over the veto of the
appropriation for two years. Additionally, opposed the
exclusion of funding that would give rural students the
luxury of attending schools that were of the same quality
afforded to many urban students. He planned to check with
the rural school districts to determine what was happening
and whether districts were considering the state to be out
of compliance with the Kasayulie Case. He did not believe
the state was in compliance.
Co-Chair Stedman added that there was a moratorium on
school construction (the original five-year moratorium had
been extended another five years). He believed the
committee needed to talk about the issue as a whole,
including school construction in rural and urban areas and
debt reimbursement. He remarked the committee would have a
hearing on the topic at some point.
10:55:18 AM
Mr. Painter reviewed a table on slide 11 comparing
statewide items under the current policy and current law
scenarios. The difference in the debt service amount was
due to the municipal project debt the governor vetoed in
the FY 20 and FY 21 budgets. The governor had vetoed all
funding for school debt reimbursement in FY 21; therefore,
it had been used as the current policy assumption, whereas
current law assumed the item would be fully funded. He
noted the information on slide 11 was the UGF amount only.
The governor was proposing DGF to be put toward the
program. There was no difference in the state retirement
payments. He noted that they had already discussed the REAA
fund capitalization that had a difference between current
policy and current law.
Mr. Painter continued to review slide 11. He explained that
the governor had vetoed a supplemental to community
assistance and the FY 21 deposit had been made wholly from
the PCE program; therefore, LFD considered the current
policy to be funding from PCE and no UGF. He noted there
were two possibilities because current statute provided two
options. The baselines assumed the amount needed to get to
a $30 million deposit total. Statute stated that it could
be the amount to make a $30 million deposit or the amount
to reach a $90 million fund balance, which would add
roughly another $30 million appropriation. He elaborated
that LFD had selected the lower of the two amounts because
it was closer to what had been done; however, the statute
allowed for either appropriation. He concluded with oil and
gas tax credits on slide 11. He noted that there had not
been an appropriation for the credits in FY 21 and the
statutory calculation in FY 22 was $60 million.
10:57:23 AM
Mr. Painter moved to a table on slide 12 titled "FY22
Current Policy and Current Law Scenarios." The table showed
a baseline of approximately $3.9 billion for agency
operations, which was lower than the FY 21 budget due to
one-time items. The baselines assumed a capital budget of
about $150 million (where it had been for the past six or
so years). The FY 21 capital budget had been a bit lower,
but it had not been complete due to the early end to
session. He noted the change in the PFD [located under the
subtotal line]. He explained that the deficit would be
about $900 million under the current policy assumption and
about $2.4 billion under the current law assumption.
Co-Chair Stedman asked for a reminder on how the dividend
was calculated in each of the two scenarios.
Mr. Painter answered that the current policy scenario
assumed the dividend would be the appropriation made in
FY 21. The dividend had been roughly $1,000 at a cost of
$680 million. The current law assumption followed statute
at a cost of just over $2 billion.
10:58:45 AM
Mr. Painter turned to slide 13, "Governor's FY21/22
Budget." A table illustrated that the governor's budget for
agency operations was down $77.4 million below the current
law and current policy assumptions. He would discuss
specific reduction areas in the upcoming slides. The
governor's proposed budget for statewide items was above
the current policy assumption and below the current law
assumption. The governor had 50 percent funding for the
school debt and REAA but did not use UGF for tax credits.
He added there was a difference in the community assistance
as well. The governor's budget was significantly below the
LFD assumption due to the bonding proposal using the Alaska
Housing Finance Corporation (AHFC). He would cover the
topic in the next several slides. The governor's statutory
PFD was an increase from current policy and the same as
current law. He noted that before the dividend, the
governor's proposed budget was about $140 million below
current policy and about $300 million below current law.
After the PFD, the governor's budget was about $1.2 billion
above current policy and $300 million below current law.
11:00:18 AM
Mr. Painter reviewed slide 14, "Governor's FY21/22 Budget
(Cont.)." He noted that as committee members had heard
numerous times, the governor's budget included a $1.2
billion supplemental PFD payment for FY 21 from the ERA (on
top of the ERA draws already taken for the POMV draw). The
governor's budget took two separate ERA draws in FY 22:
$3.1 billion for POMV and $2.0 billion for the statutory
PFD. The budget also included a fast-track supplemental
budget. He noted that the deadline for supplementals was
the following day and there could be some additional
supplemental items from the governor at that time. The
governor's budget had an estimated $50 million deficit from
the CBR after the second ERA draw for the PFD. He noted
that the information was slightly different than
information presented by OMB. He explained that OMB had
built in a piece of legislation with an estimated amount
and had introduced a subsequent fiscal note with slightly
less savings.
11:01:37 AM
Mr. Painter moved to slide 15 related to agency operations,
which were $77.4 million UGF [below LFD's baseline]. He
noted that the OMB director had just reviewed most of the
changes. The largest change was the $35.1 million reduction
in Medicaid; however, total funding was flat because of
one-time funding carried forward from FY 21. The University
of Alaska is down $20 million UGF, in line with the last
year of the compact agreement. The Department of
Transportation and Public Facilities was down $17.2
million, due partly to a reduction to AMHS and primarily to
the one-time use of federal CARES Act money to offset
general funds. A reduction of $3.4 million and 101
positions to the Public Assistance Administration was the
largest other cut in the governor's budget. The K-12
formula was fully funded but student count changes
projected by districts resulted in lower funding (included
in LFD baseline). All other changes resulted in a net $1.7
million reduction. He remarked that the vast majority of
the changes were included in the first three items (on
slide 15).
11:03:04 AM
Mr. Painter addressed statewide items at a total of $464.1
million on slide 16. School debt reimbursement and REAA
Fund capitalization were funded at 50 percent of statutory
level. Community assistance was funded with $12.4 million
of PCE Funds (DGF) and no UGF, which led to a payout to
community assistance recipients of about $19.5 million in
FY 23. He noted that the base payments to municipalities
had totaled about $19.7 million in FY 21. He explained that
the $19.5 million paid out the base payments, but it would
not pay out any per capita payments. He relayed that LFD
projected there would be a slight proration of the base
payments; however, it was fairly hard to notice the
difference.
Mr. Painter continued to review slide 16. The governor's
proposed budget funded oil and gas tax credits at the
statutory $60 million using AIDEA receipts (other) rather
than UGF. He noted the proposal was a non-designated use of
AIDEA receipts. He elaborated that there had been proposals
over the past couple of years to use AIDEA receipts for
items like oil and gas tax credits or other non-designated
items. For the sake of transparency, LFD recommended that
if the legislature wanted to take money from AIDEA, it
should not be used to artificially lower the size of the
budget. He explained that it would distort the size of the
budget. He stated that the item had no statutory relation
to AIDEA and using the fund code hid the true size of the
budget.
Mr. Painter addressed the last item on slide 16. The
governor had introduced a Public Employees' Retirement
System (PERS) bill - SB 55 - that was estimated to save a
net of $31.3 million UGF by changing the calculation of the
cap on PERS for state employees.
11:05:14 AM
Mr. Painter discussed the governor's proposed $58.5 million
UGF capital budget on slide 17. He remarked that the amount
may seem low; however, it was bolstered by a $101.6 million
AHFC bond package. He explained that repaying the bonds
would not come as a payment to the state budget, but it
would reduce AHFC dividends to the state by $6 million to
$7 million per year. He noted that LFD had heard different
numbers from different members of the administration. He
added that AHFC dividends to the state were a UGF revenue
source. The governor planned a $350 million general
obligation bond; however, no legislation or projects had
been introduced yet. The cost of the bond had not yet been
determined and the debt service was not included in the
governor's 10-year plan. He recommended adding the bond
projection when viewing the governor's 10-year plan. The
governor's fast track supplemental included some unfunded
FY 21 capital projects.
Mr. Painter expounded that the previous session, the
legislature had rolled part of the capital budget into the
operating budget. Some of the unfunded projects had
received RPLs in August of 2020, some were funded in the
fast track supplemental, and others were funded in the
FY 22 budget through increased appropriations in that year.
For the most part, the missing items were funded in one of
the three places. He relayed there were several that were
not funded, but often for a good reason. For example, there
was a university project that ended up being funded with a
federal grant.
11:07:13 AM
Mr. Painter moved to a spreadsheet on slide 18 showing a
short fiscal summary of the governor's budget (UGF Only).
He pointed out that agency operations were down nearly $200
million from FY 21. He reported that the difference between
that number and LFD's baselines were the one-time items
related to COVID-19. He remarked that sometimes people
stated that the governor was proposing to cut the budget by
$450 million. He explained the decrease included many
natural reductions, which LFD did not count as a budget
cut. He detailed it was the reason for the other baselines
to provide a cleaner point of comparison and avoid
exaggerating the size of the governor's reductions.
Mr. Painter continued to discuss slide 18. Statewide items
were up $17.8 million, primarily due to the 50 percent
funding of school debt and REAA versus no funding for the
items in FY 21. The capital budget was down significantly
for reasons he had previously highlighted. The governor was
showing a $242.6 million reduction from the FY 21 budget,
but much of the reduction was due to one-time items coming
out.
Mr. Painter relayed that the PFD in the governor's FY 22
budget was up by about $1.3 billion (using the statutory
amount) compared to the prior year. The governor's fiscal
summary included the savings from the PERS legislation of
$31.3 million. He shared that the governor had subsequently
introduced an education bill that would increase funding by
approximately $35 million, but it was not included in the
fiscal summary. He stated that arguably the two line items
could be removed as they canceled each other out; however,
LFD was striving to reflect the governor's fiscal summary
that only included the bill that saved money and not the
bill that increased funding. The governor's budget
contained a $1.1 billion increase from FY 21, primarily due
to the increase to the PFD.
Mr. Painter continued to address slide 18. The governor's
supplementals in FY 21 increased the FY 21 budget by $39.8
million for items other than the PFD and $1.2 billion for
the supplemental PFD. When including the supplemental items
for FY 21, the governor's FY 22 budget was down, but it was
a bit of a misleading comparison. The total deficit was
about $2.1 billion each year. In FY 21, the deficit would
be met by an additional draw from the ERA as well as the
deficit from the CBR at about $900 million, which had
already been appropriated. In FY 22 about $2 billion of the
deficit would be filled from the ERA and about $50 million
from the CBR.
11:10:14 AM
Mr. Painter discussed advanced to slide 19, "Governor's
FY21/22 Budget (Cont.)." He stated that the governor's
budget built in several UGF reductions that may be
difficult to repeat or may be a one-time reduction. He
listed the reductions shown on the slide:
- $35.0 million of lapsing balances for Medicaid
$14.1 million of one-time fund changes in DOT
$60.0 million of AIDEA Receipts for tax credits
$101.6 million of AHFC bonds for capital budget
Mr. Painter elaborated on the reductions. He stated that
the lapsing balances for Medicaid allowed the FY 22 budget
to be smaller than the true amount expected to be spent on
Medicaid in the year. He addressed the $14.1 million of
one-time fund changes in DOT and explained that with the
most recent federal stimulus bill there were additional
federal funds going to DOT for a longer period; however,
the funding was for highways and airports and may be for
different purposes. He explained that it was unclear
whether the $14.1 million of one-time fund changes could be
sustained for a few years. He noted the item would likely
have more clarity in the governor's amended budget that
would be released in a couple of weeks.
Mr. Painter addressed the $60 million of AIDEA receipts for
tax credits. He supposed it would be possible to build in
the appropriation annually to eventually draw the full $700
million in owed tax credits, but he did not know whether it
was the governor's suggestion long-term. He considered it
to be a one-time budget maneuver. The AHFC bonds reduced
the size of the FY 22 budget; however, the funding
mechanism could not be used repeatedly and constituted a
one-time savings. When combining all of the reductions on
slide 19 it reflected about $200 million in one-time budget
maneuvers to reduce the size of the FY 22 budget. He noted
that without the items the governor's UGF budget would be
relatively flat from FY 21 to FY 22 for operations and the
capital budget.
11:12:22 AM
Mr. Painter reviewed slide 20 titled "Governor's 10-Year
Plan," beginning with ERA overdraws in FY 21 and FY 22. He
explained that the governor's plan showed the ERA overdraws
as a one-time maneuver in FY 21 and FY 22 and called for a
balanced budget starting in FY 23. The primary way the
governor's budget called for a balanced budget in FY 23 was
$900 million to $1.2 billion in new revenue in FY 23. He
noted that the governor did not specify where the new
revenue would come from. Another deficit filling measure
was the dividend reduction from the 50 percent of statutory
net income in current law to 50 percent of the POMV draw
beginning in FY 23 (a reduction of about $400 million per
year going forward). The governor's budget included agency
operations reductions of about $100 million in each of
FY 23 and FY 24 and limited growth to about 1.5 percent
after FY 24. He noted the built-in growth was below the
rate of inflation. In total, the governor's plan would
reduce agency operations from $3.8 billion in FY 22 to $3.7
billion in FY 23 and $3.6 billion in FY 24.
11:13:48 AM
Mr. Painter spoke to slide 21, "Governor's 10-Year Plan
(Cont.)." He explained that the governor's proposed FY 21/
FY 22 ERA overdraws came at a cost of future earnings in
the Permanent Fund. He elaborated that the impact could be
calculated in a variety of ways. He found the simplest way
was to use the 5 percent POMV draw. He detailed that 5
percent of the $3.2 billion overdraws was $160 million per
year. He expounded that the built-in inflation adjustment
was essentially the inflation adjusted deficit increase
caused by the $3.2 billion in overdraws. In real terms,
future deficits would be larger by $160 million per year as
a result of the overdraws. The situation would require
additional action to close future deficits. He stated that
the legislature would have to weigh the benefits of the
stimulus spending that the overdraws represented, which the
governor had talked about in the State of the State versus
the long-term cost. He added that the proposal had a short-
term benefit to the economy, but it would increase future
deficits.
Mr. Painter continued to review slide 21. The governor was
calling for new revenue. He highlighted that in order to
have new revenue starting in FY 23, it was a discussion
that would need to take place during the current year,
given the length of time it would take to enact a new tax
or fully consider changes to petroleum taxes. He reasoned
that it would be very difficult to put the discussion off
to the next legislative session if the target were $1
billion in new annual revenue. He added that even doing the
work in the current session was optimistic because it would
require starting a broad-based tax in the middle of the
calendar year on July 1 (typically a new tax would be
rolled out on January 1 to give a full year). He noted that
beginning a new tax in the middle of a calendar year would
reduce the revenue in the first year of implementation.
Mr. Painter discussed that policy choices the legislature
and governor made would have different effects on the
economy and different distributional impacts. For example,
if the legislature decided to have more stimulus spending
upfront, it would have a positive economic impact in the
short-term, but it would result in a larger deficit in the
future that would have to be filled from somewhere and it
could hurt the economy in future years. He explained that
adopting a reduction to the PFD versus implementing a new
income or sales tax would have different impacts on
Alaskans with different income levels or different areas of
the state, which was something the legislature should
consider when making decisions on how to close the deficit.
Mr. Painter relayed that if the legislature agreed to the
overdraws for FY 22 without taking measures the governor
suggested in his 10-year plan, the ERA could easily go the
same way as the CBR and SBR where there were continued
structural deficits drawn from the account and it could be
rapidly depleted despite its current significant balance.
He underscored that each year there was further delay in
resolving the long-term deficit, it dug a deeper hole.
Mr. Painter remarked that some people had said that the
Permanent Fund had performed well, and it was possible to
safely draw extra from the fund; however, the point of the
POMV draw was to smooth market volatility. He highlighted
that the past March the fund had decreased to $60 billion,
but there had been no real worry the state would not be
able to make its POMV payment because of the sufficient ERA
balance. There had been no discussion that the ERA draw
would need to be reduced in the present because the state
was in the situation for the long-term. He remarked that if
there came a time when the ERA buffer no longer existed and
where the state was spending on the high but not reducing
spending on the low, it would increase volatility going
forward. He stated that sticking to the POMV draw provided
more stability.
Mr. Painter recognized that there may be a reason during
the current global pandemic to break that rule; however,
simply because there was more revenue available did not
mean it was cost-free to draw the funds. He noted a
similarity to prior years when there had been fast growth
when oil revenue was high. At the time, there had also been
a concerted effort to save because it was understood that
the revenue would not last forever. He reiterated that
spending in the highs and failing to cut in the lows meant
there would be overspending over time. He concluded that
following the POMV draw was the way to keep revenue flowing
in perpetuity.
11:19:13 AM
Co-Chair Stedman remarked that in the past, one of the
areas that got the retirement plan in trouble (the
Teachers' Retirement System (TRS) in particular) was when
during a couple of strong financial years, the cream had
been taken off the top and the accounts had still been
exposed to down markets. He stated that it was not possible
to take the cream off the top in good years and think that
it meant averages would not work against the system in bear
markets. He stated that the Permanent Fund was no
different. He highlighted that the state had made the error
in the 1980s and early 1990s dealing with TRS. He believed
it was important to avoid making the same mistake with the
Permanent Fund. He pointed out that there was no other
backstop available. He stressed that the stakes were high.
Co-Chair Stedman referenced the bullet point specifying
that the governor's 10-year plan called for $900 million to
$1.2 billion in new revenue starting in FY 23 (slide 20).
He believed it would be more applicable to mark the numbers
down as a deficit because there was no discussion of any
magnitude on new revenues.
Senator Hoffman requested information showing the average
of the PFD since its inception. He thought the information
would be a good benchmark to show how much the State of
Alaska had been paying on an annual basis.
Co-Chair Stedman relayed that the Alaska Permanent Fund
Corporation (APFC) could provide the information during its
future presentation to the committee. He would also ask
APFC to calculate what the PFD would have been if the state
did not reinvest its 50 percent (50 percent had gone to the
PFD and the state's 50 percent had been reinvested). He
noted that the method had accelerated the growth of the
Permanent Fund. He would ask APFC to provide inflation
proofing data for historical PFDs as well. He pointed out
that it would not be beneficial to provide 20 to 30-year-
old data without inflation proofing it in order to have
purchasing parity.
Co-Chair Stedman stated that the committee would hear from
APFC later in the week. He wanted to hear about any
repercussions that ad hoc draws would have on fund
management and portfolio strategies. He suspected that it
may be significant.
11:22:50 AM
AT EASE
11:24:06 AM
RECONVENED
Co-Chair Stedman discussed the schedule for the following
day. The committee would hear from the Department of
Revenue on state savings accounts, budget reserves, and
state debt. He stated the conversation would be a prelude
to discussion on the capital budget and interest in a bond
package or any other debt that may be applied to the state.
ADJOURNMENT
11:25:06 AM
The meeting was adjourned at 11:25 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012921-020121 SFIN OMB Budget Overview Addendum.pdf |
SFIN 2/1/2021 9:00:00 AM |
OMB Budget Overview Addendum |
| 020121 SFIN LFD Presentation.pdf |
SFIN 2/1/2021 9:00:00 AM |
LFD Budget Presentation |
| 020121 FY21-22 Swoop Graph with Data Labels.pdf |
SFIN 2/1/2021 9:00:00 AM |
FY22 Gov Budget - FY21Management Plan Comparison |
| OMB Response Attachment 3 - Non-State Owned Roads Currently Maintained by DOTPF.pdf |
SFIN 2/1/2021 9:00:00 AM |
SB 49 |
| OMB Response to 2.1.21 SFIN.pdf |
SFIN 2/1/2021 9:00:00 AM |
SB 49 |
| 020121 OMB Response Attachment 1 - DEED 5-yearADMchange.pdf |
SFIN 2/1/2021 9:00:00 AM |
SB 49 |
| 020121 OMB Attachment 2 - DEED 5-yearADMchangeDetail.pdf |
SFIN 2/1/2021 9:00:00 AM |
SB 49 |