Legislature(2023 - 2024)SENATE FINANCE 532
03/24/2023 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Fiscal Summary Update and Fiscal Scenarios by Division of Legislative Finance | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
March 24, 2023
9:01 a.m.
9:01:17 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Jesse Kiehl
Senator Kelly Merrick
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Alexei Painter, Director, Legislative Finance Division;
Conor Bell, Fiscal Analyst, Legislative Finance Division;
Senator Cathy Giessel.
PRESENT VIA TELECONFERENCE
SUMMARY
PRESENTATION: FISCAL SUMMARY UPDATE and FISCAL SCENARIOS BY
DIVISION OF LEGISLATIVE FINANCE
Co-Chair Stedman discussed the agenda. He relayed that the
committee would consider all the variables concerning the
crafting of the FY24 Operating Budget. Additionally, the
committee would consider the balance of the Constitutional
Budget Reserve (CBR) and the balance of the Earnings
Reserve Account (ERA).
^PRESENTATION: FISCAL SUMMARY UPDATE and FISCAL SCENARIOS
BY DIVISION OF LEGISLATIVE FINANCE
9:03:07 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
discussed a PowerPoint presentation entitled "Fiscal
Summary Update and Fiscal Scenarios" (copy on file).
CONOR BELL, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION,
introduced himself.
Mr. Painter looked at slide 2, " Outline":
• Response to Questions from 3/21/23 Meeting
• Oil Price Volatility
• Review of Senate Finance Committee
Modeling Assumptions
• CBR and ERA Balance
• Updated Fiscal Summaries
• Updated Fiscal Models
Mr. Painter spoke to slide 3, "Historical UGF Capital
Budgets," which showed a bar graph. He noted that there had
been questions from a previous meeting concerning
historical unrestricted general fund Capital Budgets. He
said that bonding that was UGF supported had been added to
the calculation on the slide. He continued that LFD had
considered Capital Budgets over the last twenty years. He
relayed that the nominal average of non-match UGF totaled
$554.3 million, while the total including bonding was
$655.3 million. He said that in inflation adjusted terms
using FY22 dollars the totals changed to $696.7 million and
$832.6 million, respectively.
9:04:51 AM
Mr. Painter thought that the question was in relation to
the discussion about a $400 million Capital Budget
assumption and whether it was high or low.
9:05:04 AM
Co-Chair Stedman announced that Senator Giessel had joined
the gallery.
9:05:19 AM
Mr. Painter referenced slide 4, "Constitutional
Appropriation Limit," which showed a graph. He noted that
Senator Merrick had asked a question about the
constitutional appropriation limit. He noted that the black
line on the slide reflected the limit, beginning at its
inception in 1983. The blue bars showed agency operations,
the green were statewide operations, and the red bars
showed the capital budget. He stated that in the early
years of the LFD reconciliation of historical bills showed
that the limit may have been broken in the first few years.
He said that the limit was approached again in FY28 and
FY14 but were currently several billion from the limit.
Mr. Painter continued that the orange line was the line for
capital projects, and he noted that the capital budget
could only consume one-third of the limit; the operating
budget could only consume two-thirds of the limit. He
shared that the limit had been challenged several times.
9:07:29 AM
Mr. Painter turned to slide 5, "What's Changed Since LFD's
2/23 Fiscal Update":
• Spring Revenue Forecast reduced FY23 UGF revenue
projection by $246.3 million and FY24 UGF revenue
projection by $665.0 million.
• This forecast update also caused a decrease of the
estimated FY23 tax credit payment by $29.0 million and
an increase of the estimated FY24 tax credit payment
by $13.0 million.
• The Alaska Permanent Fund Corporation provided an
updated FY23 statutory net income forecast, reducing
the FY23 projection from $4.6 billion to $2.5 billion.
This reduces the FY24 estimated statutory
dividend appropriation from $2.47 billion to
$2.25 billion, and the estimated payment per
recipient from $3,800 to $3,450.
This also reduces the realized balance of the
ERA accordingly.
• The Governor requested an additional $16.0 million
UGF in FY24 in an amendment package submitted on March
7, and an additional $3.7 million UGF in FY23 an
amendment package submitted March 22.
Mr. Painter elaborated that the FY 23 appropriation had
been based on the statutory formule, which adjusted upwards
and downward with the price of oil. He said that the
governors budget contained the amount to pay oil tax
credits in full. He explained that he would discuss the
reduced realized balance of the ERA in a later slide. He
noted that two different amendment packages had been
released by the governor since February, which had been
incorporated in the current fiscal summary.
9:10:25 AM
Mr. Painter considered slide 6, "Daily Oil Prices Since
2020," which showed a line graph depicting oil prices from
January 2020 to March 2023. He remarked on the oil price
volatility shown on the graph. He noted the recent
relatively minor downturn in oil prices. He recounted that
over the previous few years LFD had urged the legislature
to pass a budget that worked with a wide variety of oil
prices. He felt that it would be imprudent to pass a budget
that relied solely on one forecasted number.
Co-Chair Stedman recalled that the previous year the
committee had anticipated volatility in oil prices. The
committee had also prepared a structure in case of changes
in revenue. He imagined that members would be interested in
a similar discussion about preparing for a rise or fall in
oil prices.
Co-Chair Stedman thought it was a good reminder for the
finance committees of both bodies to consider oil price
volatility when crafting the budget.
Mr. Painter noted that both finance committees had
considered various prices in their budget discussions.
9:13:08 AM
Mr. Painter displayed slide 7, "FY24 Sensitivity Graph,"
that showed a graph depicting the variation in revenue with
the change in oil price. He pointed out that the spring
forecast reflected $73/barrel, which using the governors
proposed budget would result in a deficit of $900.5
million. The governor's budget would break even at
approximately $87/barrel.
Mr. Painter continued that since the forecast was a single
price point, he urged the committee to consider the figures
in terms of the variations.
Co-Chair Stedman suggested that if the oil price was
$73/bbl, the budget from the other body would result in a
deficit of $903.5 million.
Mr. Painter clarified that that the $903.5 million deficit
was in relation to the governors proposed budget. He noted
that he would discuss the other bodys proposal on a later
slide.
Co-Chair Stedman clarified that the graph showed a
statutory dividend.
Mr. Painter replied in the affirmative.
Co-Chair Stedman understood that the slide showed the
statutory dividend using the new and updated statutory
dividend calculation.
Mr. Painter answered affirmatively.
9:15:15 AM
Mr. Painter highlighted slide 8, "Comparison of Recent UGF
Revenue Forecasts," which showed a line graph depicting
comparisons of the previous four revenue forecasts. He
mentioned the "cone of uncertainty" and the idea that there
was less variation in the short-term and more in the long-
term. He related that recently the opposite had been
observed. The forecast for FY23 had a spread of $2.4
billion between the high in spring 2021 and fall of 2021.
He noted that the spread between forecasts had decreased
over time. He related that in FY28, the difference between
the lowest forecast and highest forecast was under $400
million. He said that for fiscal planning purposes there
had not been meaningful change between the long-term and
short-term, even with the extreme variations in the short-
term.
9:17:19 AM
Mr. Painter looked at slide 9, "Review of Committee
Modeling Assumptions":
Revenue Assumptions
• LFD's baseline revenue assumptions are the
Department of
Revenue's Spring Revenue Forecast.
This assumes $73 oil in FY24, following futures
market thereafter.
DNR oil production forecast projects that
Alaska North Slope production will increase from
496.4 thousand barrels per day in FY24 to 542.9
thousand barrels per day in FY32.
• For the Permanent Fund, we are using the February
2023 History and Projections update, which assumes a
total return of 7.00% in FY23 and 7.05% in FY24 and
beyond. For statutory net income, this update uses a
blend of actuals and the low case for FY23 and a 6.90%
statutory return assumption in FY24 and beyond.
9:18:31 AM
Mr. Painter addressed slide 10, "Review of Senate Finance
Committee Modeling Assumptions (cont.)":
Spending Assumptions
• For agency operations, the first model assumes the
Governor's amended budget including amendments through
3/7 grows with inflation (2.50%). Other models assume
the House Committee Substitute grows with inflation
(2.50%).
• For statewide items, assumes that all items are
funded to their statutory levels in FY24 and beyond.
This includes School Debt Reimbursement, the
REAA Fund, Community Assistance, oil, and gas tax
credits.
For the capital budget, assumes a $400 million
capital budget in FY24, growing with inflation
thereafter (2.50%).
• For supplementals assumes $50.0 million per year.
This is based on the average amount of supplemental
appropriations minus lapsing funds each year.
• For Permanent Fund Dividends, we were asked to model
three scenarios: the current statute, 50% of the POMV
draw, and 25% of the POMV draw
9:19:56 AM
Mr. Painter advanced to slide 11, "Probabilistic Modeling":
• LFD has two versions of the fiscal model: a linear
model which assumes that revenue matches DOR's
forecast, and a probabilistic model that shows the
impact of revenue volatility
• The probabilistic model allows for variation in
three variables:
Oil prices (using a range centered around DOR's
forecast)
Oil production (using the range between DNR's
"high" and "low" production forecast)
Permanent Fund investment returns (using the
ranges developed by Callan for APFC)
• This leaves out potential variation in non-oil
revenues and inflation
Mr. Painter commented that the fiscal model did not assume
any dynamic changes in spending.
9:20:58 AM
Mr. Painter looked at slide 12, "Example: 25th Percentile
Result," which showed two graphs that modelled that 25
percent of trials had higher overall deficits and 75
percent had lower overall deficits:
• Example of a single case, for which 25 percent of
total cases see greater overall deficits.
• Example case had average oil price of $68.77 and
average Permanent Fund return of 5.2 percent.
9:22:15 AM
Mr. Painter showed slide 13, " Evaluating Risk: Earnings
Reserve Account Balance":
• Alaska Permanent Fund Corporation (APFC) provided an
updated FY23 statutory net income forecast, reducing
the FY23 projection from $4.6 billion to $2.5 billion.
• This reduces the FY23 projected realized ending
balance of the ERA to $8.8 billion, compared to a
realized balance of $13.8 billion at the beginning of
the year.
• If conditions in FY24 are similar to FY23, the
balance of the ERA could fall precipitously.
• At the end of February, $7.7 billion of the $11.8
billion of unrealized gains in the Permanent Fund were
in Real Estate and Private Equity, which are
relatively illiquid assets. Our realized income
assumption likely understates the risk of low
statutory net income over the near term, meaning that
there is an elevated risk of ERA insufficiency
compared to our modeling.
9:24:08 AM
Senator Wilson thought the APFC planned to have the cash on
hand for the ERA transfer. He asked whether there would be
a portfolio balance to make draws in the outgoing years.
Mr. Painter explained that if the realized balance in the
ERA dropped to the level of the ERA draw, the APFC might
need to manage the fund in a suboptimal way. He mentioned
the possible selling of assets.
Co-Chair Stedman asked whether the illiquid investments
were about the same as previously, meaning that all the
margin came out of the more liquid side, resulting in
substantially reduced flexibility.
Mr. Painter thought there were a couple of contributing
factors. He noted that the value of private equity assets
was slower to respond to market changes than public
equities because they were not traded as heavily. He said
that the high amount of unrealized gain showing in private
equity was that the market had not reflected a reduction in
the value of those assets that may have occurred. He said
that a start-up was not likely to go out for a new round of
investment if it would show a greatly reduced valuation of
the company. He related that the portfolio might not be
worth as much as was shown on paper.
9:27:29 AM
Co-Chair Stedman pondered that there needed to be an
inquiry to the APFC regarding the full details of the
matter. He worried that the issue could be significant and
should be considered.
9:28:23 AM
Senator Bishop suggested that hypothetically if the POMV
was inside the constitution, the investment portfolio would
be altered.
Co-Chair Stedman hoped for an update from APFC.
9:28:57 AM
Mr. Painter referenced slide 14, " ERA Balance Projections
Forecast and Hypothetical," which showed two tables. He
explained that the slide showed how the ERA balance could
drop quickly. He explained that the top left of the slide
reflected $13,816.0 billion ending ERA realized balance at
the end of FY 22. Mr. Painter continued to read from the
forecast table on the left-hand side of the slide:
FY23 POMV Draw ($3,361.0)
FY23 Inflation Proofing Transfer 8.0 percent Inflation
($4,164.0)
FY23 Statutory Net Income Projection - $2,475.0
FY23 Ending ERA Realized Balance - $8,766.0
FY24 POMV Draw ($3,526.0)
FY24 Inflation Proofing Transfer 2.5 percent Inflation
($1,420.0)
FY24 Statutory Net Income Projection (Official Forecast)
($5,140.0)
FY24 Ending ERA Realized Balance - $8,960.0
Mr. Painter relayed that the LFD modeling showed that the
ERA was fairly durable because changes in inflation were
not factored into the model. He discussed the
hypothetical table on the right-hand side of the slide:
FY22 Ending ERA Realized Balance - $13,816.0
FY23 POMV Draw ($3,361.0)
FY23 Inflation Proofing Transfer 8.0 percent Inflation
FY23 Statutory Net Income Projection - $2,475.0
FY23 Ending ERA Realized Balance - $8,766.0
FY24 POMV Draw ($3,526.0)
FY24 Inflation Proofing Transfer 6.0 percent Inflation
($3,408.0)
FY24 Statutory Net Income Hypothetical (Matching FY23) -
$2,475.0
FY24 Ending ERA Realized Balance - $4,307.0
Mr. Painter did not think that the hypothetical scenario
was far-fetched.
9:32:14 AM
Co-Chair Stedman reminded that the hypothetical inflation-
proofing transfer of 6 percent might not happen. He
admitted that it was an option that could be skipped and
would be under discussion in the coming weeks.
Mr. Painter noted that the other body had not included the
transfer in their version of the Operating Budget.
9:32:53 AM
Mr. Painter turned to slide 15, " ERA Balance Modeling
ERA Risk without Overdraws":
• This modeling likely understates the risk of ERA
insufficiency because of the difficulty of modeling
statutory net income and inflation.
It is presented to provide context for future
probabilistic slides showing fiscal plans with the
change of the ERA going to zero.
Modeling assumes the legislature will not inflation
proof if the balance is below the amount of the
following years POMV draw.
Mr. Painter announced that the slide likely understated the
true risk.
9:33:51 AM
Mr. Painter considered slide 16, "Short Fiscal Summary
GovAmend with Spring Forecast," which showed the updated
fiscal summary of the governor's amended budget. He
highlighted line 3, which offered an adjustment for the
spring forecast from ($246.3) in FY23 and ($665.0) in FY24.
He highlighted an increase of $16 million in agency
operations on line 8 due to the governors amendments. Line
9 showed the changes factored in for oil and gas tax credit
estimates in FY23 and FY24. Line 10 reflected the
supplemental appropriations, resulting on Line 18 with a
$221.2 million post transfer deficit in FY23. He said that
the SBR could fill the first $20 million, leaving $200
million to come from the CBR. He stated that the other body
had a CBR vote in the fast-track supplemental bill.
Mr. Painter pointed out Lines 16 and 18 showed a $900
million deficit, with the reduced PFD on line 15. He noted
that the reserve balances were shown on a small table on
the bottom right. He noted that LFD had received the
Comprehensive Annual Financial Report (CAFR) and had not
yet worked with OMB to establish a new FY22 agreed upon CBR
balance for budgeting purposes. He did not think that there
would be a big difference, but the number would change.
9:36:40 AM
Co-Chair Hoffman noted that the governor's FY24 amount for
the PFD was the statutory amount. He recalled that one
month previously LFD had presented the committee with the
governors budget scenario, with the statutory amount had
been $2,470.0. He asked the reason for the adjustment of
the figure from a month ago versus today.
Mr. Painter noted that the change was due to the statutory
net income adjustment from $4.6 billion to $2.5 billion.
The reduction of the statutory net income reduced the
amount of the projected PFD.
Co-Chair Hoffman asked whether Mr. Painter recalled the
population estimate used in the calculation.
Mr. Painter believed that the estimated number, based on
the previous years calculation, was 636,000 recipients.
Co-Chair Stedman mentioned an earlier question regarding
the update of statutory net income and the five-year
average. He noted that the FY23 PFD number was projected
but unknown and subject to change. He commented on Line 16
and recalled that LFD had recommended a $3.5 billion CBR
balance. He worried that the statutory dividend calculation
could drain the CBR.
Mr. Painter agreed that it was possible the CBR could get
down to zero with the surplus deficit.
9:40:57 AM
Co-Chair Hoffman emphasized that the formula for the PFD
needed to be finalized. He noted that historically the
dividend had not been set by finance committees. He
strongly believed that the legislature needed to come up
with a PFD formula that worked and was acceptable to the
other body and the governor. He agreed with Co-Chair
Stedman that the PFD was a critical issue, and he thought
one of the key components was the POMV split and a revision
of the formula.
Co-Chair Stedman hoped that the public realized that if the
legislature paid a statutory dividend, there was a risk of
not having dividends at all in the near future.
9:42:43 AM
Mr. Painter displayed slide 17, " Short Fiscal Summary
GovAmend with Spring Forecast, SFIN Modeling Assumptions,"
which showed the same fiscal summary with two changes
assumptions. He noted that Line 9 showed a $30 million
increase for community assistance and Line 12 reflected an
increase of $97 million in the Capital Budget.
9:43:28 AM
Co-Chair Hoffman pointed out that additional items under
consideration were not included in the presentation, the
largest being an increase to the BSA.
Co-Chair Stedman noted that there was nothing in the budget
to address the University of Alaska's deferred maintenance,
which normally totaled $50 million. Additionally, the
Capital Budget process had yet to begin, which meant that
the numbers were likely understated.
9:44:22 AM
Mr. Bell highlighted slide 18, "Senate Finance Baseline
Budget - Statutory PFD," which took the budget assumptions
detailed by Mr. Painter in the prior slide and compared
them using DORs spring forecast. He said that the surplus
deficit values were shown in red under each year of the
scenario.
Mr. Bell looked at the dotted line on the left-hand table,
which showed the budget before the PFD; the solid black
line reflected the total including the PFD. The blue bars
showed the baseline traditional revenues, the POMV revenue
was shown in green, and the yellow bars signified the draws
from the CBR and SBR. He noted that the small brown bar
reflected ARPA revenue replacement and the red bars
represented unplanned ERA draws.
Mr. Bell relayed that under the assumptions, the CBR and
SBR were empty by FY25 and unplanned draws from the
permanent fund began. Under the scenario, by FY32 the ERA
would be empty. The table on the right showed the CBR/SBR
balances in yellow, and the green showed the realized
portion of the ERA.
Mr. Bell discussed the POMV draw rates delineated by year
at the bottom of the slide, which would need to be %.8
percent in FY25 to have a sufficient draw. The bottom line
showed the PFD paid out per person under the statutory
dividend.
9:48:01 AM
Co-Chair Stedman cautioned that if the scenario on slide 18
took place, it would necessitate the implementation of
taxes. He asked how much would need to be raised to make
payroll if the ERA was at zero.
Mr. Painter indicated that the deficit in FY32 was
projected at $2.2 billion, with no other source of revenue,
$2.2 billion would need to be raised to make payroll.
Co-Chair Stedman understood over $2 billion would be needed
to make payroll and no PFD would be paid out.
Mr. Painter mentioned that when LFD did the modelling using
the assumption there were no funds in the CBR and SBR, and
draws were taken from the ERA, there was a compounding
effect that reduced the balance of the permanent fund,
investment earnings, and the POMV draw. The revenue lines
shown on the graph did not exactly match the forecast,
because LFD assumed the compounding effect. He added that
obviously the legislature may not choose to take the action
of using the ERA. The purpose of the models was to show the
effect of the policy path overtime.
9:50:33 AM
Senator Kiehl thought the model also assumed a flat 7
percent return from the Permanent Fund. He said that if the
return were lower the outlook worsened.
9:50:55 AM
Mr. Bell looked at slide 19, "Senate Finance Baseline
Budget - Statutory PFD," which showed the same assumptions
as the prior slide and showed two graphs applying the
probability assumptions. The slide would give some idea of
the volatility of the state's revenues. The chart on the
left showed the range of surpluses and deficits. The blue
bars showed the medium deficit, and the green bars showed
the 25th and 75th percentiles of forecasted outcomes for a
given fiscal year. He noted that the black lines reflected
thth
the ranges from the 10 to 90 percentile outcomes.
Mr. Bell noted that the chart on the right showed the range
of fiscal year-end realized ERA balances. He said that the
th
dotted green line showed the 25 and 75 percentiles. Under
these assumptions, 10 percent of the time the ERA balance
went to zero by FY26, 25 percent of the time the ERA
balance went to zero by FY28, and the median outcome showed
the balance emptied. He noted that no assumption for
potential slow or realized return for private equities or
real estate had been considered.
Mr. Bell noted that the bottom of the slide showed the CBR
balance probabilities. He stated that the first row showed
the probability of the CBR falling below $3.5 billion,
which was the estimated need amount to cover multiple years
of large shortfalls in revenue. He said that in FY24, 84
percent of the time the CBR was below $3.5 billion and by
the end of the period the CBR was at the threshold only 7
percent of the time. He related that the bottom line showed
the CBR at or below the $500 million balance. He stated by
FY25 the CBR fell below the $500 million threshold half of
the time, 75 percent of the time by FY32.
9:55:30 AM
Senator Bishop asked if the model included the FY 24
inflation-proofing.
Mr. Bell replied in the affirmative. He said that the
official projections from Callan had been used.
Co-Chair Stedman understood that under the assumption, 25
percent of the time the next administration started with no
ERA or cash balances.
Mr. Bell affirmed that under the assumption and with no
policy changes the answer was yes.
Co-Chair Stedman thought that alternatives would need to be
sought.
9:56:52 AM
Mr. Painter addressed slide 20, " Short Fiscal Summary
House Operating Budget Committee Substitute," which showed
a fiscal summary with an additional column that showed the
CS for the Operating Budget from the other body. He noted
that the revenue lines were the same except for the fact
that the other body had not accepted the governors $13.9
million deduction from the cash dividend for AIDEA. He said
that Lines 8 and 9 matched what was in the CS from the
other body. He noted that the other body had yet to
th
consider the march 7 amendments. He relayed that the
Capital Budget number used was the House governor amended
budget and the PFD was 50 percent POMV and was estimated to
pay a dividend of $2,700. He pointed to the third column,
Line 16, which reflected a deficit of $417.9 million. He
shared that the assumed $303 million Capital Budget had
been rolled out before the DOR spring forecast had been
released and had shown a surplus, now there was a projected
$400 million deficit. He spoke to the box at the bottom
right of the slide which showed a projected CBR balance in
FY24 of $1.9 billion.
Co-Chair Stedman asked about the PFD assumption used on the
slide.
Mr. Painter noted that Line 14 showed a dividend at 50
percent POMV, an appropriation of $1.76 billion, estimated
to pay $2689 per recipient.
Co-Chair Stedman thought the assumption was for the 50/50
dividend. He understood that the assumption did not include
additional Capital Budget appropriations or additional
education funding.
Mr. Painter answered affirmatively.
9:59:53 AM
Senator Wilson asked about the current CBR balance.
Mr. Painter estimated that the CBR balance was currently
$2.3 billion, with a cash balance of $1 billion because a
transfer of money from the general fund to the CBR had not
yet been made.
Senator Wilson asked whether the slide included the
potential CBR draw.
Mr. Painter answered "yes," without a CBR draw in FY23
there would be a $200 million hole in FY23 that would need
to be filled.
Co-Chair Stedman thought there were two things at play, one
of which was that the other body had already voted to
access the CBR, and the senate had yet to vote on the
matter. He thought that the senate agreeing with the draw
was likely. He considered that if the FY24 vote to access
the CBR being blocked due to lack of votes. He queried what
the legislature would do at that point.
Mr. Painter pondered that the FY23 CBR language prioritized
the CBR after the SBR draw. He said that if there was no
ability to access the CBR in FY24, with the SBR drawn to
zero, remaining reserves to meet the budget would be the
ERA or the PCE fund. Or the legislature could reduce the
budget or increase revenues. He stressed that the
legislature was constitutionally mandated to pass a funded
budget and with no CBR draw or other changes the deficit
gap would need to be closed by budget cuts.
10:02:34 AM
Co-Chair Hoffman recalled the $1.6 billion for dividends
included the $600 energy rebate.
Mr. Painter replied in the negative and explained that the
energy rebate was counted as a statewide item and was
reflected on line 9.
10:03:10 AM
Senator Bishop noted that the fiscal summary did not
include fiscal notes.
Mr. Painter answered affirmatively. He explained that
legislation with fiscal impact was not included in the
budget. Instead, bills had fiscal notes that reflected
fiscal impact, and were incorporated into the Operating
Budget at the end of session. He noted that the largest
fiscal note pending was for the increase of the BSA.
Co-Chair Stedman considered that there were substantial
potential outflows that were not reflected on the slide.
10:04:35 AM
Mr. Painter advanced to slide 21, "Short Fiscal Summary
House Operating Budget Committee Substitute, SFIN Modeling
Assumptions," and noted that the fiscal summary included
the $96 million to the house Capital Budget assumption,
which would increase the projected deficit to $514.3
million. He said that this would be the starting point for
the models on the 50/50 POMV split plan on the coming
slides.
10:05:05 AM
Mr. Bell looked at slide 22, "Senate Finance Baseline
Budget - 50% of POMV to PFD," which showed the assumptions
from the prior slide. He stated that the deficits at the
beginning of FY24 were approximately $564 million, growing
to $1.4 billion by FY31. He relayed that the CBR and SBR
would be drawn to make up for the deficits. He related that
beginning FY26, unplanned ERA draws beyond the POMV draw
began to occur. Starting FY27 there was a billion or more
per year of unplanned draws from the ERA, which steadily
draws down the realized ERA balance. By FY32 there was a
remaining unrealized ERA balance of $1.8 billion. If the
model ran into the future the ERA would be empty by FY33.
He said that the effective POMV draw rate reached
approximately 6.6 percent in FY30 through FY32. He relayed
that the 50/50 PFD would be at $2,700 in FY24 and would
increase year after year even as the value of the fund
declined due to the unplanned ERA draws.
Co-Chair Stedman asked whether the slide assumed the
updated Willow Project numbers in the projected oil prices.
Mr. Bell affirmed that the modelling included the most
recent forecast from DOR, which included the updated
production forecast.
10:07:24 AM
Co-Chair Hoffman queried how much revenue would need to be
raised in FY 31 and FY32 to balance the budget.
Mr. Bell cited that the state would need approximately $1.3
billion in new revenue or budget cuts to balance the budget
in FY32.
10:08:01 AM
Senator Wilson asked whether the deficit numbers would
change if new revenue was added in FY32 and beyond.
Mr. Bell replied in the affirmative. He noted that part of
the impact was that the unplanned ERA draws lowered the
value of the fund, which lowered the POMV draw amount.
10:08:46 AM
Mr. Bell spoke to slide 23, "Senate Finance Baseline Budget
- 50% of POMV to PFD," which showed the same assumptions as
the previous slide with 50 percent of the POMV draw going
to the PFD. The slide showed probabilistic modeling with
potential volatility in oil prices. On the right the
realized ERA balance was shown to look like the statutory
modeling; 10 percent of the time the ERA balance went to
zero in FY27 and 25 percent of the time the balance went to
zero in FY29.
Mr. Bell addressed the CBR balance probabilities at the
bottom of the slide. He shared that the CBR balance
probabilities showed the CBR below $3.5 billion at 76
percent probability in FY24, increasing to 83 percent in
FY32. The final line showed the CBR at or below $500
million at 3 percent in FY24, increasing to 60 percent in
FY32.
Co-Chair Stedman referenced a similar fiscal predicament in
Alberta, Canada, and asked if the state could simply borrow
money to run state operations.
Mr. Painter relayed the money could be borrowed for the
Capital Budget but not the Operating budget.
Co-Chair Stedman thought that the results of borrowing
funds had not been beneficial to Alberta.
10:11:56 AM
Mr. Bell referenced slide 24, " Senate Finance Baseline
Budget - 25% of POMV to PFD," which showed the same budget
assumptions as the previous slide. The PFD for FY24 would
be $1,304 per person, increasing to $1,491 in FY27. Under
the scenario, there were small surpluses for FY24 through
FY26, with small deficits starting in FY27 and increasing
to $250 million in deficits by FY30. The SBR and CBR were
sufficient throughout the period to fill the deficits, and
there were no overdraws from the ERA. He cited that the CBR
balance by the end of the period was approximately $2.1
billion, experiencing growth in the earlier years but
declining beginning FY29. The PFD remained basically at
$1,500 to $1,600 per person throughout the later part of
the period.
Co-Chair Stedman reminded the committee that the scenario
did not include some other expenditures.
10:13:49 AM
Co-Chair Hoffman queried the FY23 total dividend
appropriation.
Mr. Painter noted that in FY23, the PFD plus energy relief
was $2.1 billion.
Co-Chair Hoffman wondered what the figure would be in FY24.
Co-Chair Stedman interjected the number would be $881
million.
10:14:40 AM
Mr. Bell turned to slide 25, "Senate Finance Baseline
Budget - 50% of POMV to PFD," which showed the
probabilistic modeling for the 25 percent POMV draw. The
chart on the left showed that in FY 24, 50 percent of the
time the number fell between $300 million deficit and $1.4
billion surplus. In FY29 the deficit was $950 million, and
the surplus was $800 million. Since there were no overdraws
from the ERA, in almost all trials of the model, 10 percent
of the time the ERA balance went to zero by FY27, and 25
percent of the time by FY30. The probability of the CBR
dropping below $3.5 billon was 62 percent in FY24, dropping
to 35 percent in FY32. The probability of the CBR being at
or below $500 million was at zero percent in FY24,
increasing to 17 percent by FY32.
Co-Chair Stedman thought it looked as though there was a 65
percent success rate in the modeling for FY28 and beyond to
be at or above the CBR target.
Mr. Bell noted that only 35 percent of the time, in the
last half of the period, was the CBR below the $3.5 billion
balance.
10:17:07 AM
Senator Merrick asked whether it was possible to get the
total amounts of the fiscal notes, per year, for the last
decade.
Mr. Painter agreed to provide the information.
Co-Chair Stedman offered that the figure varied a bit but
was significant. He said that the office carrying
legislation tracked the fiscal notes for the committee and
could provide the data.
Co-Chair Stedman thanked the representative from LFD for
their work. He said that more modeling could be done on
other variations of the POMV split. He noted that there was
legislation at play that dealt with the issue.
Mr. Painter commented that he had started fiscal modelling
for the legislature in 2016 and pondered how little things
had changed since that time in terms of the long-term
options. He recounted that modeling over the years had
shown that the 25/75 POMV split had resulted in a balanced
budget with no other actions, while a 50/50 POMV split
showed the need for additional revenue. He said that the
long-term picture regarding policy options had remained
unchanged from 7 years ago. He noted that the information
presented could seem repetitive, but the end solutions had
remained similar.
10:20:05 AM
Co-Chair Hoffman commented that when the legislature passed
SB 26, it had balanced the budget with a 27/75 split with a
POMV draw of 5 percent. Prior to that time, legislators had
been reluctant to spend from the fund. He thought that the
change had been a political decision that had been debated
in hearings of SB 26. He said that through negotiations the
senate had offered a one-time appropriation for education
because long-term revenues were not available. He noted
that SB 26 had passed the sente with only 12 votes because
of the implications of tapping the ERA and setting up the
POMV as well as the dividend calculation. He thought that
the problem under discussion at the time was why was the
legislature looking only to the people of Alaska to balance
the states budget. He believed that other mechanisms were
possible outside of revising the POMV draw. He stressed the
need for other revenue measures and the preservation for
the permanent fund. He mentioned legislation from the
previous year and announced that he was contemplating
bringing legislation before the committee that would offer
other options for balancing the states checkbook.
10:24:07 AM
Co-Chair Hoffman continued his remarks. He stressed that
the committee could make tough decisions.
Co-Chair Stedman agreed that the committee had made some
tough decisions. He recounted the various work the
committee had done on working to balance the budget and
provide Alaskans with a PFD. He felt that discussions on
the matter would continue.
Co-Chair Stedman discussed the agenda for the following
week.
ADJOURNMENT
10:26:59 AM
The meeting was adjourned at 10:26 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 032423 SFIN Fiscal Update 3-24-23.pdf |
SFIN 3/24/2023 9:00:00 AM |