Legislature(2021 - 2022)SENATE FINANCE 532
01/28/2022 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Department of Revenue - Savings Accounts/ Budget Reserves/investment Funds | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
January 28, 2022
9:02 a.m.
9:02:10 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Bert Stedman, Co-Chair
Senator Donny Olson
Senator Bill Wielechowski
Senator David Wilson (via teleconference)
MEMBERS ABSENT
Senator Click Bishop, Co-Chair
Senator Lyman Hoffman
Senator Natasha von Imhof
ALSO PRESENT
Brian Fechter, Deputy Commissioner, Department of Revenue;
Pam Leary, Director, Treasury Division, Department of
Revenue.
SUMMARY
PRESENTATION: DEPARTMENT OF REVENUE - SAVINGS ACCOUNTS/
BUDGET RESERVES/INVESTMENT FUNDS
Co-Chair Stedman relayed that the committee would consider
a presentation from the department.
^PRESENTATION: DEPARTMENT OF REVENUE - SAVINGS ACCOUNTS/
BUDGET RESERVES/INVESTMENT FUNDS
9:03:30 AM
BRIAN FECHTER, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
introduced himself and thanked the committee for the
invitation to testify.
Co-Chair Stedman noted that Senator Wilson was online.
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE, discussed a presentation "Update on Investment
Funds and Cash Flows" (copy on file). She turned to slide
2, "Agenda":
1. Update on State Investment Funds
2. State Cash Flows
3. Revenue Volatility Management
9:04:20 AM
Ms. Leary showed slide 3, "Update on State Investment
Funds."
Ms. Leary mentioned the division had had 5 State Investment
Review meetings with the Investment advisory Council (IAC)
and the commissioner for state funds. The meetings and
associated materials were online on the department website.
Ms. Leary referenced slide 4, "Constitutional Budget
Reserve Fund (CBRF) - Historical Invested Assets (in
billions)":
Data is at fiscal year end of June 30.
• In 1990, voters of Alaska adopted an amendment to
the constitution creating the CBRF.
• CBRF is used to fund temporary cash flow
expense/revenue mismatches.
• CBRF is used to appropriate/cover budget revenue
shortfalls.
• Appropriations from the CBRF must be repaid.
*The Statutory Budget Reserve Fund (AS 37.05.540) was
part of the GeFONSI before and after being managed as
a separate fund from July 2013-October 2015.
Ms. Leary noted that the state borrowed $960 million from
the CBR in FY21.
Ms. Leary directed attention to the chart on the slide and
specified that the blue area reflected the CBR main fund.
The yellow area represented the CBR sub-fund. The grey area
showed the Statutory Budget Reserve (SBR). She addressed
the final bullet point on the slide; approximately $12.8
million was owed to the CBRF.
9:07:40 AM
Co-Chair Stedman asked Ms. Leary to expand on the balance
of the CBR and go into detail on interest charged and
payback timeframes.
Ms. Leary explained that there was no time-period to repay
the CBR, and there was no interest associated with the
repayment.
Co-Chair Stedman asked about the Statutory Budget Reserve,
which he explained had a lower vote threshold of a simple
legislative majority.
Ms. Leary explained that there was no payback mechanism or
timeframe requirement.
Co-Chair Stedman explained that the SBR was a holding
account, and the legislature used it more frequently to
balance budgets. He understood that the fund was a zero.
Ms. Leary noted that there was currently a small balance.
Co-Chair Stedman asked whether the administration had any
plans to pay back the CBR.
Mr. Fechter interjected that there were internal
discussions about paying back the CBR based on oil prices.
Co-Chair Stedman asked whether the governors proposed
budget reflected a payback to the CBR.
Mr. Fechter replied in the negative. He said any surplus
would be used to pay back the CBR
9:10:58 AM
Co-Chair Stedman noted the rapid decline of the state's
savings reflected in the chart on slide 4, and the loss of
investment earnings.
9:11:23 AM
Ms. Leary turned to slide 5, " Constitutional Budget
Reserve Fund -Fiduciary oversight: Commissioner of
Revenue," which showed a data table with an embedded pie
chart. She detailed that the CBR had a target allocation of
$1 billion. The fund had a very short-term investment
horizon as there was a question about how the fund would be
used going forward. She drew attention to the $1 billion
market value in the middle of the chart and relayed that
the returns had been very low.
Co-Chair Stedman asked Ms. Leary to discuss CBR cash flow
and minimum balances, as well as historic minimum balances.
Ms. Leary stated that there was a historically higher
balance in the CBR, because it is the savings account. She
commented that having access to the Earnings Reserve
Account (ERA) had changed past practices. The current
budget reflected no draws form the CBR over the next two
years, but that would depend on how the legislature crafted
the budget.
Co-Chair Stedman asked about the minimum targeted balances
For the CBR by the administration.
Mr. Fechter stated that $1 billion had been an agreed upon
number. He added that in a situation of uncertainty and
ongoing deficits that figure would change, and he stressed
the need for a comprehensive fiscal plan.
9:15:22 AM
Co-Chair Stedman stated that Ms. Leary and Mr. Fechter's
predecessors had testified many times that a comfortable
balance would be in the $2 to $3 billion range. He said it
was not until the state was in a deficit that the $1
billion figure was presented. He thought the point was
that, as the CBR was drawn down to extremely low levels,
the minimum balance recommended by the administration had
gone down commensurately. He considered that a minimum
balance of $1 billion was concerning as it gave no safety
cushion. He was concerned that the accepted low balance
would become even lower.
Co-Chair Stedman continued his remarks. He wanted Ms. Leary
and Mr. Fechter to explain to the committee the internal
agreements, or path forward, to a drawdown of the ERA. He
said that the committee was eager to discuss cash flow.
9:18:10 AM
Senator Wielechowski asked Ms. Leary to go back to slide 4.
He thought the slide was fascinating and wanted to point
out to the public that the massive jump from 2007 to 2014
when the state savings increased under a fair value oil tax
structure. He noted that the tax structure had been
repealed in 2013 and went into effect in 2014. He thought
the state was blowing through its savings while not
receiving fair value for its resources. He asked whether
the governor was contemplating a bill to fix the state's
oil tax structure, which he thought was broken and caused
the state to lose money.
Mr. Fechter replied that over the summer the administration
had studied a variety of changes that could be contemplated
but that no revenue measure was currently being considered.
Senator Wielechowski asked about the findings from the
studies and asked what the governor was waiting for as now
was the time to act with oil at $92/bbl.
Mr. Fechter stated that the outcome of the study as a look
at the per barrel tax credit. He said that it was found
that capping the sliding scale $8/bbl., at $5/bbl., would
allow oil companies to remain competitive, and give the
state fiscal relief at varying levels depending on the
price of oil at the point in time. He said he could not
speak to why the governor was not taking significant action
on the matter.
Co-Chair Stedman relayed that during discussions on SB 21,
the Senate had supported a $5/bbl. tax, which the house
increased to $8/bbl. That increase had significantly
shifted the sharing relationship between the state and the
industry at high oil prices.
9:22:38 AM
Senator Olson asked whether Co-Chair Stedman was indicating
there should be an amendment to change the sliding scale.
Co-Chair Stedman clarified that he was saying the economics
of $5 per barrel (bbl.) left the industry in a competitive
position. He thought there were many other issues and
conditions that had changed, and fresh analysis would be
beneficial and would be before the committee in the coming
weeks.
9:23:59 AM
Ms. Leary considered slide 6, "Power Cost Equalization
(PCE) - Historical Invested Assets (in millions)":
• The purpose of the PCE Endowment fund is to
provide for a long-term stable financing source
that provides affordable levels of electric
utility costs in otherwise high-cost service
areas of the state.
• 5% of the monthly average market value of the
fund for the previous 3 fiscal years may be
appropriated. If prior years earnings exceed this
amount, 70% (not to exceed $55M) of the
difference can be spent on related identified
programs.
Ms. Leary shared that the PCE Fund was at $1.15 billion in
2021.
Co-Chair Stedman asked about the status of the sweep of the
PCE Fund.
Ms. Leary stated that currently the PCE Fund was not
included in the sweepable funds.
Co-Chair Stedman explained that at the end of the fiscal
year the PCE fund would not automatically be swept to
service CBR debt. He asked whether the SBR could be swept.
Mr. Fechter stated that the SBR was on the list of
sweepable funds.
9:26:40 AM
Ms. Leary displayed slide 7, " Power Cost Equalization Fund
- Fiduciary oversight: Commissioner of Revenue," which
showed a data table with an embedded pie chart. She
commented that the PCE had an intermediate investment
horizon and a high-risk objective with a diversified asset
allocation. She relayed that the market value as of
December 31, 2021, was $1.163. The projected ten-year
return was 5 percent.
9:27:53 AM
Ms. Leary highlighted slide 8, "Alaska Higher Education
Investment Fund (AHEIF) - Historical Invested Assets (in
millions)":
• On September 1, 2012, the AHEIF was capitalized
with a $400 million deposit from receipts of the
Alaska Housing Capital Corporation for use in
paying Alaska Performance Scholarship Awards and
AlaskAdvantage Education Grants.
• The fund is to be swept to the CBRF effective
6/30/2021
Ms. Leary noted that the Higher Education Fund was
sweepable and would be swept into the CBR effective June
30, 2022. She said that the administration was awaiting
guidance and to how the transfer would be made
Co-Chair Stedman understood that at the beginning of the
fiscal year the funds were swept but that the mechanics
took longer because account balances had to be determined.
He understood that as the account balances were determined
the account balances would be completed.
Ms. Leary answered in the affirmative.
Co-Chair Stedman recalled that the Attorney General had
determined that the fund was non-sweepable. He thought that
the SBR had been on the sweepable funds list for years.
Mr. Fechter stated there was nuance involved. The
Department of Law had decided that if there were a valid
appropriation, with a retroactivity date, for the current
fiscal year, that amount would be reserved from the amount
to be swept. Any balance above and beyond what had been
appropriated would be the amount to be swept.
Co-Chair Stedman understood that the appropriations would
be considered and then the balance would be swept.
Mr. Fechter agreed.
Co-Chair Stedman said that he had legal opinions that
showed that the practice would not pass generally accepted
accounting principles. He shared that if the practice did
not pass an audit, Legislative Council would intervene. He
did not feel that the practice passed acceptable accounting
standards. He preferred that the audit process go through,
and after the release of the audit findings, the committee
would hold a hearing on the matter. He expressed concern
that the administration was disregarding standard
accounting principles.
9:33:31 AM
Co-Chair Stedman continued his remarks. He felt that the
courts would hand down the final decision on the matter.
9:34:27 AM
Senator Olson referenced the Higher Education Fund. He
queried the status of the fund. He thought slide 8 showed
the fund had been swept.
9:35:32 AM
Mr. Fechter affirmed that Senator Olson was correct that
the fund was in sweep status and was unavailable for
funding going into 2023. He shared that the governor was
100 percent supportive of the programs that the fund
supported, such as the Washington, Wyoming, Alaska,
Montana, and Idaho (WWAMI) program. He said that the
governor had fully funded the program, funded by general
funds. He said that the three-quarter vote could be enacted
retroactively by the legislature to turn things back to
prior to June 30, 2021.
Co-Chair Stedman asked why there was not a request for a
reverse sweep in the governors budget proposal. He asked
whether the committee should expect to receive a
supplemental request from the administration.
Mr. Fechter stated that the issue, from the governor's
perspective, was a legislative issue. He corrected himself
that the SBR was not a sweepable fund.
Co-Chair Stedman understood the oversight.
9:38:00 AM
Senator Olson asked what the governor had done specifically
to ensure that the Higher Education Fund and other funds
were part of the reverse sweep. He asked what the governor
had done to show more than just verbal support.
Mr. Fechter pointed to the fact that the Performance
Scholarship and WWAMI were funded in the governors
proposal with unrestricted general funds dollar.
Co-Chair Stedman recalled that the previous director of the
Office of Management and Budget had not supported a reverse
sweep. He thought there were conflicting messages being
delivered to the committee.
Senator Olson thought the departure of the previous OMB
director was one of the best things that had happened to
the state.
Co-Chair Stedman did not argue with Senator Olson's
comment.
9:41:10 AM
Ms. Leary looked at slide 9, "Alaska Higher Education
Investment Fund - Fiduciary oversight: Commissioner of
Revenue," which showed a data table with an embedded pie
chart and illustrated the investment statistics of the
fund. She shared that the fund was funded with the current
asset allocation. She commented on the long-term investment
horizon and said that the fund would be invested as-is
until guidance was received as to whether it would be
swept.
Co-Chair Stedman wanted to note that the guidance would
come quickly, within weeks and not months. He expressed
concern that the fund, once swept, would go into the CBR
with a near zero rate of return. He asked about the
opportunity cost of the action.
Ms. Leary stated that the opportunity cost would be the
lost of investment earnings.
Co-Chair Stedman asked for a dollar amount.
Ms. Leary stated that it would be 5 percent of
approximately $4 million, or $20 million.
Co-Chair Stedman estimated that the cost would be $20
million per year.
Mr. Fechter added that the CBR statute allowed for the
establishing of a sub-fund if there was a belief that the
full balance of the fund would not be needed within a 5-
year period. He said there were internal conversations
pertaining to the authority to exercise a more aggressive
investment strategy.
Co-Chair Stedman asserted that it was very rare to have
substantial equity exposure within a two to three-year time
horizon. He stated that the committee would monitor the
situation. He reminded the testifier of the knowledge of
the committee in understanding risk and time horizon
pertaining to the CBR.
9:44:26 AM
Ms. Leary addressed slide 10, "General Fund and Other Non-
Segregated Investments (GeFONSI) - Historical Invested
Assets (in billions)*":
GeFONSI includes the General Fund and Other Non
segregated funds invested in a pooled environment (GF
proper= $400 million).
GeFONSIII was created in 2018 to target a higher risk
return profile for a subset of funds.
Ms. Leary relayed that all the funds were about 180
underlying funds that provided funds for various agency
uses; the funds were managed together but accounted for
separately in the state system. She pointed out that the
graph showed the GeFONSI balance had larger balances during
2007 and 2012. She relayed that the general fund often had
higher balances at the end of each fiscal year in
anticipation of payments into funds appropriated for the
following year. She said that as of 2021 the GeFONSI
balance was $3.46 billion, with $1.6 billion in the general
fund.
Co-Chair Stedman suggested Ms. Leary go back and
investigate an incident from a decade ago when the CBR
investments were in higher, more aggressive funds,
resulting in millions lost in a matter of weeks. He thought
three members of the committee had vivid memories of the
event. He cautioned that return of investment was more
important than return on investment.
Mr. Fechter responded that the Investment Advisory
Committee had been implemented to advise on investments.
Co-Chair Stedman affirmed that the committee had made the
recommendation for well over a decade. He was appreciative
that the advisory committee had been created.
9:48:46 AM
Ms. Leary advanced to slide 11, "General Fund and other
non-segregated investments (GeFONSII & II) Fiduciary
oversight: Commissioner of Revenue," which showed a table
with two embedded pie charts. She noted that the total
investments combined was $2.8 billion. She noted the short-
and long-term returns.
9:49:17 AM
Ms. Leary looked at slide 12, "Public School Trust Fund
(PSTF)Historical Invested Assets (in millions)":
• The PSTF was established in 1978, replacing the
territorial era public school land grant
originally created by congress in 1915, by a
transfer of the balance from the permanent school
trust.
• Following passage of HB 213 in 2018, the fund is
now managed as one fund, under a percentage of
market value method (5% of the average market
value for the 5 years preceding the last previous
fiscal year).
9:50:26 AM
Ms. Leary showed slide 13, "Public School Trust Fund -
Fiduciary oversight: Commissioner of Revenue," which showed
the funds balance of $850,700 as of December 31, 2021. The
target asset allocation had a long-time horizon of 69
percent equity and 31 percent fixed income, like the Higher
Education Fund. The one-year return had been 12.56 percent
since December, and the expected long-term rate of return
was 5.62 percent.
9:51:06 AM
Ms. Leary referenced slide 14, "Public Employees Retirement
System & Teachers Retirement System (PERS and TRS)
Pension and Health Defined Benefit Plans Historical
Invested Assets (in billions)":
• The Alaska Retirement Management Board (ARMB) is
a 9-person board that is the fiduciary of the
state's pension and health systems.
• The defined benefit plans currently experiences
net outflows from the funds.
• The 37-year return Average for PRS/TRS was 9.22%
Ms. Leary pointed out the growth in the funds since they
were established. She said that the 37-year return average
for the funds was 9.2 percent. The actuarial assumed rate
could change in the coming year.
Co-Chair Stedman noted that the committee would be hearing
presentations on the retirement systems and would go into
substantially more detail. He thought there would be good
news to share concerning the unfunded liability.
9:53:01 AM
Ms. Leary turned to slide 15, "Public Employees Retirement
System & Teachers Retirement System - Fiduciary oversight:
Alaska Retirement Management Board," which showed a table
with an embedded pie chart. She detailed that the funds had
30 percent private equity, 21 percent fixed income, and 49
percent equity, with a current balance of all plans (minus
defined contribution) $33.3 billion. Yearly calculated
returns were 24.6 percent, with a 7.38 percent actuarily
rate of return.
Co-Chair Stedman asked Ms. Leary to advance the slide. He
noted that if the performance was good, it would be
reflected in the unlimited liability balance. He did not
see the need to discuss the slide in depth at this time.
9:54:40 AM
Senator Wielechowski was curious if the fund was invested
similarly to the Alaska Permanent Fund.
Mr. Fechter explained that the investment and spending
profile of the permanent fund was different than retirement
funds.
Co-Chair Stedman thought Callan and Associates could speak
to the question later.
Senator Wielechowski asked whether the PERS and TRS board
had taken past recommendations made by Callan and
Associates.
Ms. Leary replied that the board had worked with Callan
when developing the risk profile for the fund.
Co-Chair Stedman thought the question should be posed to
the ARM Board and Callan.
9:56:54 AM
Senator Wielechowski was not sure that his question had
been answered.
Co-Chair Stedman thought future conversations with the
board and with Callan would be informative.
9:57:09 AM
Ms. Leary showed slide 16, "State Cash Flows."
Ms. Leary displayed slide 17, "Cash vs. Accrual balances":
• Cash balance is what you have in the bank at a
given point in time.
• Accrual balance is what you have earned and what
liabilities have been incurred at a particular
point in time. It is what you should have at a
particular point in time after all expected
receipts and expenditures come in and out.
• Treasury fund balances are cash balances, not
what is available to spend.
9:58:02 AM
Ms. Leary highlighted slide 18, " SOA Treasury Cash Flow,"
Cash Inflows
?Tax Revenues
? Oil & Gas, Excise, Other
?Federal Dollars
? Grants, Medicaid, FHWA, Education, Other
?Earnings Reserve Funds
?Agency Receipts
? Fees, Licenses, Permits, Fines, Other
Cash Outflows (through the State of Alaska Division of
Treasury Cash Management)
• School Education Payments
• Payroll & Pension Payments
• Vendor Payments
• Medicaid Payments
• External Program Grant Payments
• Debt Service Payments
Co-Chair Stedman asked about the ERA funds. He understood
that those funds went into the general fund and were then
dispersed. He asked whether the PFD came from the ERA or
the co-mingled pot of the general fund.
9:59:31 AM
Ms. Leary stated that the previous year the funds had come
from the SBR and the ERA (vis the general fund).
Co-Chair Stedman understood that generally the SBR was not
used. He asked for a general flow of how the mechanics
worked.
Ms. Leary explained that the money was requested form the
ERA, the money went into the general fund, and that amount
was passed on to the Permanent Fund Dividend Fund (managed
in the treasury) and then dividends were paid out.
Co-Chair Stedman asked how the funds could bypass the
general fund and be deposited straight into the dividend
fund.
Mr. Fechter thought the issue was a matter of appropriation
choice. He thought the legislative bodies could structure
the mechanics, so a portion of the dividend moved from the
ERA to the dividend fund. He said that it was a personal
preference appropriation bill structure situation.
Co-Chair Stedman asked if the dividend fund was a
subcomponent of the general fund.
Ms. Leary stated that the Dividend Fund was a separate
fund, managed by the treasury, but reported up into the
general fund as a whole on financial statements.
Co-Chair Stedman thought that the comingling of the
dividend fund in the general fund was an issue.
Ms. Leary stated she would accommodate whatever direction
that was given by the legislature in terms of handling
money. She said that the dividend fund had its own
investment structure.
10:03:33 AM
Co-Chair Stedman asked whether he should expect to see the
dividend fund listed as a component part of the general
fund.
Ms. Leary believed that on the state financial statements
it was part of the general fund.
Co-Chair Stedman contended that the dividend fund was a
subcomponent of the general fund.
10:04:09 AM
Senator Wielechowski asked how long the funds transferred
from the permanent fund sat in the dividend fund, earning
the lower rate of return.
Mr. Fechter replied that in a normal year the funds would
be put in a short term, 90-day, investment so that some
interest could ben earned before the payment run in
October.
Co-Chair Stedman interjected that there had been discussion
about smoothing out the transfers throughout the year.
Senator Wielechowski was curious about the money being
transferred at the beginning of the fiscal year in June,
and sitting, earning a lower rate of return, until
distribution in October.
Mr. Fechter stated that the department worked directly with
APFC to manage cash flow needs. He explained that there had
been conversations about entering into revenue anticipation
notes. He said that there were bills pertaining to revenue
anticipation mechanisms currently being considered in other
committees.
Ms. Leary commented that the department set a cash flow
transfer schedule each year and tried to keep the general
fund proper at the minimum necessary to pay the states
bills. There had been cash calls that had to be changed,
although not dramatically.
10:07:39 AM
Ms. Leary looked at slide 19, "Cash Flow Deficiencies":
Prior to 1985, most unrestricted revenues flowed into
and stayed in the General Fund for expenditure.
Over time, the legislature established many subfunds
to segregate cash for budgeting purposes, resulting in
less cash available to pay day-to -day operating
costs.
Expenditures can occur prior to receipt of revenue,
resulting in cash flow timing mismatches:
• Federal programs require expenditures before
reimbursement.
o i.e. Medicaid, Transportation, etc.
• Beginning of year appropriation transfers do
not match incoming revenue.
o i.e. State pension payments, transfers
to subfunds.
• Seasonal Cash Flow needs.
o i.e. Summer is the peak season for
construction projects and seasonal
workers.
10:08:58 AM
Senator Wielechowski thought insufficient returns on the
SBR and CBR resulted in a significant loss to the Permanent
Fund. He hoped to see legislation to alleviate the issue.
Mr. Fechter said that he would welcome the opportunity to
testify on such legislation. He was excited to investigate
other options to mitigate loss.
Co-Chair Stedman was more inclined to support the option of
building up the CBR and increasing liquidity, while not
touching the Permanent Fund. He asserted that a CBR balance
of $1 billion reflected poor fiscal management by the
state. He lamented that state savings had been drained by
the previous years budget. He had asked the staff at the
Legislative Finance Division to assemble a list of funds
that had been depleted, and solutions to replenishing those
funds. He did not think relying upon the Permanent Fund was
a suitable answer.
10:12:24 AM
Ms. Leary addressed slide 20, "Cash Deficiency Memorandum
of Understanding":
Developed in 1994 between DOR, DOA, OMB & LAW.
Updated as needed.
Targets $400m minimum cash threshold in the General
Fund proper.
Outlines procedures for addressing cash flow timing
mismatches:
• Develop monthly cash projections.
• Monitor daily general fund cash balances.
• Perform temporary interfund borrowing.
o Transfer from SBR, CBR & ERA or sub
funds.
• In the event of revenue shortfall:
o Seek legislative action through the
Governor to access additional funds
through appropriation from other Cash
Reserve Funds discussed above.
o Prioritize disbursements, restrict
expenditures.
Ms. Leary explained that the cash deficiency memorandum of
understanding was the "playbook of the department." She
highlighted the last bullet point, which she thought spoke
to a structural budget deficit.
10:15:01 AM
Senator Wielechowski asked about the schedule of receipt of
production tax revenue and oil tax revenue.
Mr. Fechter replied that there were monthly estimated tax
payments. He had no memory of the schedule having changed.
Co-Chair Stedman thought one concern of members was having
an assured payout of the Permanent Fund Dividend. He
stressed that risk to that payout was troubling when using
the permanent funds as an automatic fallback for a depleted
CBR. He thought that tough years in financial markets would
put the states realized earnings at risk, which heightened
the need to replenish savings accounts.
10:17:54 AM
Ms. Leary advanced to slide 21, " Cash Flow Deficiencies":
• Use of budget reserve funds has been the solution
of cash flow timing mismatches and revenue
shortfalls.
• Appropriations From Reserve funds
• The Legislature includes language annually in the
operating budget appropriating budget reserve
funds for revenue shortfalls.
• Treasury has relied on this appropriation to
authorize use of budget reserve funds to address
timing cashflow mismatches as well.
• The CBRF was fully repaid by FY10.
• Borrowing from the CBRF recommenced in FY14..notdefPer
FY20 ACFR $12.8B is owed to CBRF.
Ms. Leary noted that the CBR had been fully repaid in 2010,
but then had been depleted through borrowing from 2014 to
the present.
10:19:08 AM
Ms. Leary show slide 22, "Revenue Volatility Management."
Ms. Leary spoke to slide 23, " Revenue Volatility":
Commodity Volatility
• Petroleum revenues are 25% of FY22 projected
unrestricted general fund revenues.
• Uncertainty exists "in-year" for FY22 and beyond.
• Will always have in-year uncertainty because we
base budget on in-year oil collections.
Investment Return Volatility
• Investment earnings are 65% of FY22 projected
unrestricted general fund revenues.
• Certainty exists today for FY23 (due to a lagging
POMV formula).
• Uncertainty exists today for FY24 and beyond.
10:20:22 AM
Ms. Leary referenced slide 24, "Volatility Management
Techniques":
Access Cash Reserve and Other Funds (CBR and other
fund balances).
Modernize fiscal tools to include lines of credit in
addition to revenue anticipation notes. (HB92/SB73)
Manage timing of Earnings Reserve Account transfers to
the General Fund.
Manage timing of expenditures.
10:21:29 AM
Ms. Leary turned to slide 25, " Take Aways":
Even with balanced budgets and if all revenue is
received, cash flow timing mismatches will occur.
Cash flow forecasting is always wrong.
Revenue shortfalls may occur if forecasted assumptions
are wrong.
Higher revenue volatility requires greater cash
reserves until volatility decreases.
Volatility management techniques are available.
Ms. Leary showed slide 26, "THANK YOU":
Please find our contact information below:
Pam Leary
Director, Treasury Division
Alaska Department of Revenue
[email protected]
Brian Fechter
Deputy Commissioner
Alaska Department of Revenue
[email protected]
Co-Chair Stedman thought there were differences of opinion
on the reverse sweep as well as liquidity balances versus
the submitted budgets. He thanked Ms. Leary and Mr. Fechter
for their time.
Co-Chair Stedman discussed housekeeping.
ADJOURNMENT
10:23:56 AM
The meeting was adjourned at 10:23 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012822 State Investment Funds and Cash Flow presentation January 2022.pdf |
SFIN 1/28/2022 9:00:00 AM |
Savings Account/Budget Reserves/Investment Funds |
| 012822 General Fund and Other Investments 2021_12_CBRF_SBRF_GeFONSI.pdf |
SFIN 1/28/2022 9:00:00 AM |