Legislature(2023 - 2024)SENATE FINANCE 532
03/18/2024 09:00 AM Senate FINANCE
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| Audio | Topic |
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| Fiscal Update: Legislative Finance Division | |
| 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
March 18, 2024
9:01 a.m.
9:01:51 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Jesse Kiehl
Senator Kelly Merrick
Senator David Wilson
MEMBERS ABSENT
Senator Lyman Hoffman, Co-Chair
ALSO PRESENT
Alexei Painter, Director, Legislative Finance Division.
SUMMARY
Co-Chair Stedman reviewed the meeting agenda. The committee
would hear a presentation detailing the new release of the
Spring Revenue Forecast. The administration introduced
additional expenditures in the prior week through
amendments.
^FISCAL UPDATE: LEGISLATIVE FINANCE DIVISION
9:03:41 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
discussed the presentation, "Fiscal Update" dated March 18,
2024 (copy on file). He pointed to slide 2, "Fiscal Summary
of Governor's Amended Budget: Spring Forecast." He stated
that the slide represented the new fiscal summary of the
governor's amended budget, including the amendments
released in the prior week as well as the Spring Revenue
Forecast. The new forecast increased the FY 24 revenue
expectations by about $58 million and FY 25 revenue by
about $140 million over the revenue forecast for the fall.
In addition, the governor had introduced an amendment to
the budget that would increase the FY 24 aided dividend by
$6.9 million. The increase showed as unrestricted general
fund (UGF) revenue on the first line on the slide, but it
was a budget amendment.
Mr. Painter stated that the total amount of new revenue was
about $61 million in FY 24. The additional revenue would
not increase the amount of spendable revenue in FY 24
because of the waterfall provision. If revenue exceeded the
spring 2023 revenue forecast, the additional amount up to a
total of $636 million would be split 50/50 between two
"buckets": an energy relief payment in FY 20 that would be
distributed in FY 25 and the constitutional budget reserve
(CBR). The revenue estimate had increased to $143.3 million
for each bucket which had increased from the $110.6 million
estimate based on the fall forecast. The aided dividend
amendment created UGF revenue that would be allocated to
the energy relief payment and CBR transfers while the
governor used the funds directly as an appropriation. The
UGF revenue would still be allocated to the two buckets and
the deficit would not be decreased by spending the revenue
in the budget.
Mr. Painter relayed that the governor's supplementals
currently totaled $175.8 million as seen on the bottom of
the slide, which was a decrease from $183 million prior to
the amendments. The decrease in fire suppression by $19
million resulted in offsetting other supplementals that the
governor put forward. After supplementals, there was $116.5
million left in FY 24 that would relapse to the CBR by the
end of the year if it remained unspent. In FY 25, the
governor's amendments increased the budget slightly, but
the revenue more than offset the increase. The governor's
budget now showed a post-transfer deficit of about $867
million down from about $1 billion in the fall forecast,
which was a slight upward adjustment.
9:06:49 AM
Mr. Painter displayed slide 3, "FY 24 Budget and Oil
Revenue." The FY 24 budget was based on the spring forecast
that had a $292.3 million surplus after the governor's
vetoes. Any additional revenue went into the aforementioned
two buckets of money. The blue bar on the bottom of the
slide was revenue that would fill the existing FY 24
budget. The dark blue bar on the top of the slide
represented the governor's new supplementals totaling
$175.8 million. The budget had an unfilled deficit below an
annual average of about $75 a barrel. Prices would need to
reach as low as $40 to $50 per barrel for the rest of the
year to average $75 per barrel. The break-even point was
about $71 million earlier in the session, but the point had
now risen due to the supplementals. Below $71 million,
there would be an unfilled deficit and a CBR drop would be
needed, but it was unlikely that prices would dip to $40 or
$50 per barrel. The yellow bar was the surplus that was
available for supplementals. Any additional revenue would
be split between the energy relief payment represented by
the orange bar and the CBR represented by the green bar. If
prices were to rise, there would be an additional CBR drop.
Given that the fiscal year was nearly three quarters of the
way over, Mr. Painter expected that the revenue would fall
somewhere between the $78 to $90 million range unless there
was a drastic change. The $116.5 million would likely be
available to spend beyond the governor's supplementals.
Based on the spring forecast, he estimated that the energy
relief transfer would be a $220 additional payment on top
of the dividend in the fall.
9:09:06 AM
Mr. Painter advanced to slide 4, "Major Outstanding Items"
and stated that there would be a vote later in the day on
SB 140. He relayed that there was an error on the slide and
it should say SB 140 rather than SB 241. He read from the
slide:
• SB 241 [SB 140] (Education bill): fiscal notes total
$241.3 million.
If the veto is sustained, the BSA and pupil
transportation increases could be converted to
one-time item budget items.
However, it would likely be too late to address
broadband this year with another bill.
Mr. Painter noted that the veto override on SB 140 would
occur later in the day. There were several components to
the cost increase of the bill, such as a change in the Base
Student Allocation (BSA). There was also a change to the
multiplier for correspondence students and a pupil
transportation increase. All of the increased items could
be converted to one-time budget items. He explained that
the increased items could be incorporated into the budget
without the bill. The other item was an increase of about
$40 million for broadband; however, it was unlikely that
the applications could be completed by the federal
application deadline if the veto was upheld. He clarified
that if the veto was sustained, the $40 million would not
be necessary in the current year because it could not be
spent without meeting the application deadline.
9:10:45 AM
Senator Bishop asked whether the deadline for broadband
funding was March 27, 2024, or March 28, 2024.
Mr. Painter responded that he did not remember the exact
date, but the deadline was approaching quickly. The
broadband bill would need to be addressed soon.
Mr. Painter continued to discuss slide 4:
• Senior Benefits Legislation (SB 170): Passed Senate
with $23.5 million UGF fiscal note.
• Alaska Marine Highway: Shortfall in CY25 of up to
$38.0 million (assuming the same size grant as CY24
and a 7-ship schedule).
• Ongoing Employee Bargaining Negotiations: four
unions (Alaska Correctional Officers Association,
Alaska Public Employees Association Supervisory Unit,
Labor, Trades and Crafts, and new University of Alaska
Graduate Student Employees union) are currently
negotiating new contracts to begin in FY25.
Mr. Painter noted that the $38 million for the Alaska
Marine Highway System (AMHS) could shrink or disappear if
the state ran a lighter schedule or received a larger
grant, which the state was eligible for. In 2023, the
uncertainty was addressed by adding backstop language of
$10 million. The backstop could potentially count towards
the budget, but it would only be triggered if needed
because of the size of the federal amount. He added that
the bargaining negotiations from the unions were not yet
factored into the budget and the costs were not clear. He
expected the cost to be in the millions of dollars range at
least.
Mr. Painter continued that there was also a statutory tie
between the supervisory union and exempt salaries. There
was a bill being discussed by Legislative Council to
clarify the language. There was a possibility that any
increase given to the supervisory unit would then go to
exempt employees as well, which would increase the cost.
The statutory deadline for contractual negotiations to be
submitted by the legislature passed in the prior week, but
he offered reassurance that it was rare for the
negotiations to be submitted on time.
9:14:07 AM
Mr. Painter discussed slide 5, "Getting to a Balanced FY25
Budget." He explained that the revenue forecast was shown
at the top of the slide, followed by the governor's amended
operating budget and capital budget. There was a remaining
$1.4 billion after considering the budgets and revenue.
There were a few bills that had passed the House, the
Senate, or both bodies, such as SB 140. There were a number
of other bills that had only passed one body. The impact on
UGF from the legislation that had been passed by at least
one body totaled $11 million. If it were to be assumed that
all of the bills would pass, there would be $1.16 billion
available to spend, which would leave $246 billion as the
amount available to spend in FY 25 with the 50 percent of
Percent of Market Value (POMV) going to the dividend and a
deficit of $668 million. After considering the statutory
Permanent Fund Dividend (PFD) in the governor's budget, the
state would have a $1.1 billion deficit. Depending upon the
size of the PFD, the state would have anywhere between a
$246 billion surplus to a $1.1 billion deficit.
Mr. Painter addressed slide 6, "Other Potential Budget
Items." The slide included a list of items that could
receive funding and the amount that the governor funded.
The full amount was listed on the right. The full list for
the Renewable Energy Fund was $32 million. In 2023, the
legislature funded many of the projects on the list. The
governor funded the top project for school construction
while the full list was $260 million. The governor included
$4.3 million for the top two school major maintenance
projects while the full list was $249 million. There was a
total backlog of nearly $2.2 billion for deferred
maintenance. The governor had $28 million from the Alaska
Capital Income Fund and the university had requested at
least $35 million. The university had indicated that it
wanted legislation that would offer more flexibility on the
funding, but Mr. Painter thought the university would be
satisfied with anywhere from $30 million to $35 million.
The governor had currently allocated about $4 million to
the university in the operating budget but no funding had
yet been allocated in the capital budget. He reminded
members that the university held about $1.5 billion of the
backlog.
9:17:14 AM
Co-Chair Stedman suggested that Mr. Painter provide a high
level overview of the last decade of major maintenance
expenditures in order to highlight the trends. He was
specifically interested in the categories of kindergarten
through 12th grade, the university, the state, and the
court system. The committee would soon have a conversation
about whether it would increase major maintenance for
schools and school construction. He thought it would be
helpful to have the information when the committee was
trying to make decisions.
Mr. Painter would provide the information.
Senator Merrick asked whether Mr. Painter knew the balance
of the Alaska Capital Income Fund (ACIF).
Mr. Painter responded that LFD anticipated that the fund
would have a slight negative balance due to the realized
income in the Permanent Fund at the end of FY 24. The
current forecast was slightly under the spring projection.
Money flowed into the fund through realized income on the
Amerada Hess balance in the Permanent Fund, which was a
fixed balance. The percentage was dependent upon how much
income was realized. The current forecast was slightly
under the projection and the balance was in the negative.
The $28.2 million would be the full projected deposit in FY
25, leaving the fund still slightly in the negative
depending on the final numbers for FY 24.
9:19:10 AM
Mr. Painter highlighted slide 7, "Other Potential Budget
Items (cont.)":
Governor vetoed $30.0 million FY24 capitalization of
Community Assistance Fund; without that, the FY25
distribution will be $20.0 million instead of the full
$30.0 million.
House Finance CS for operating budget includes
$10.0 million in FY25 to increase distribution to
$30.0 million, but no additional capitalization.
• Fiscal notes for bills that have passed one body:
HB 89 (Childcare): $5.9 million UGF cost and
$4.8 million revenue reduction
SB 104 (Civil Legal Services Fund): $444.8 UGF
cost
SB 24 (Mental Health Education): $256.0 UGF
cost
• Legislative capital budget additions and district
projects are not yet included.
• Other potential additions include:
University of Alaska ($18.6 million UGF
operating difference between Regents' request and
Governor's budget, $27.0 million difference in
the capital budget).
Replacing one-time items from FY24 (childcare
$7.5 million, Council on Domestic Violence and
Sexual Assault $3.7 million, Head Start $2.5
million, etc.)
Additional items that emerge in subcommittee
process.
Mr. Painter noted that he had previously discussed the Grid
Resilience and Innovation Partnership (GRIP) project, which
had not been funded in prior budgets. The governor's recent
amendments provided funding totaling $32.7 million from
several difference sources, such as from the AIDEA dividend
and re-appropriations of past Alaska Energy Authority (AEA)
projects. He indicated that $20 million of the fund would
come from repurposing existing AEA bonds. There were some
efficiencies that would reduce the existing upgrade
project, but significant work needed to be done on the
transmission lines regardless. The choice was whether to
use the $20 million instead of incorporating state funds.
Mr. Painter recalled that he had told the committee in the
past that there was some concern that repurposing the bonds
might have to go back to the bondholders and go through an
extensive process. He offered reassurance that the bonds
had be subjected to the extensive process and had received
approval.
9:26:15 AM
Co-Chair Stedman requested that Mr. Painter provide a high
level overview of the funded one-time items that would
potentially be absent from the budget in the following
year.
Mr. Painter agreed to provide the information.
Senator Kiehl recalled that an earlier slide indicated that
the fiscal impact of all bills that had passed at least one
body was $11.4 million. He asked if the total included both
years of the legislative session or strictly the current
year. He asked if the total incorporated capital fiscal
notes as well.
Mr. Painter replied that it was both years. There were some
bills from the previous year without updated fiscal notes
because the bills had only been heard in one body. He was
not certain if the bills that had only been heard in one
body were included in the total. He responded that capital
fiscal notes were incorporated into the total.
9:27:31 AM
Co-Chair Olson relayed that the committee had recently
heard from a community that was impacted by vetoed
community assistance funding. He asked what the communities
could expect in the coming years if the current operations
continued and community assistance funding was not
determined in the standard manner.
Mr. Painter responded that if the legislature took no
action, it would receive the $20 million distribution for
community assistance in FY 25. The per capita payments
would only increase if the legislature took action. The
governor's budget included $30 million in FY 26, which
would result in a $23 million payment if the legislature
took no action. The payment would cover the base and a
small portion of the per capita payments, which was about
one-third of the total amount.
Co-Chair Olson asked for clarification on whether
communities could expect less funding in the coming years
if current operations continued.
Mr. Painter replied that communities could expect slightly
more funding in FY 26 as compared to FY 25 because the
government vetoed the FY 24 amount. The amount in the fund
was being increased over time, but the difference would be
a marginal amount of per capita payments.
Co-Chair Stedman suggested that LFD provide a spreadsheet
that would allow the public to see the difference between
the base payment and the per capita payments. He thought
the communities were mainly interested in the amount of
funding they could expect to receive.
Co-Chair Olson was curious whether communities would need
to be more frugal.
Co-Chair Stedman relayed that he would request Mr. Painter
to return before the committee in the future to provide
finer detail to determine what recommendations the
committee would make for the budget. He asked Mr. Painter
to also address the funds that he would recommend being
left on the table in the event that there were unforeseen
expenditures between May of 2024 and June of 2025.
9:30:20 AM
Mr. Painter discussed slide 8, "Fire and Disaster Funding":
• FY14-23 actual UGF spending for Fire Suppression
averaged $49.3 million. The FY25 Governor's budget is
$14.2 million, a difference of $35.1 million.
• The FY24 Governor's supplemental includes $75.0
million for this purpose.
• Under budgeting this item leads to routine
supplemental needs.
• FY16-23 average spending from the Disaster Relief
Fund is $20.5 million. The Governor's FY25 budget
requests $5.0 million, a difference of $15.5 million.
• Disasters are unpredictable, but annually funding
the average usage would make the budget more
consistent.
Mr. Painter noted that if an average number of future
disasters was assumed, the legislature would need to fund
$50 million per year to cover the cost. He explained that
LFD assumed $50 million as the supplemental placeholder in
its long-term modeling. There were emergent items every
year in addition to natural disasters. To accommodate
emergent items, either extra room could be left in the
forecast or the CBR could be utilized to fill a deficit if
it arose. In 2023, oil dropped between the spring forecast
in 2022 and the spring forecast in 2023. The legislature
voted to access the CBR to pay for the FY 23 supplemental.
The problem could potentially be addressed in the following
year by delaying the decision, but there were a few
associated risks. There were new costs that the state was
likely to face related to fires, disasters, and agency
items, as well as oil price volatility. The amount of
headroom left in the budget was a policy call. There were
limited options in 2023 because a vote to access the CBR
was difficult to achieve. Even without any supplementals,
the legislature would not have funded the budget based on
the spring forecast. He explained that a shortfall became
more likely when the oil price being utilized in budget
decisions was higher. Budgeting based on a $78 per barrel
oil estimate was riskier than budgeting based on a $70 per
barrel estimate. He thought it would be prudent to have a
savings balance or have more headroom available before
considering a CBR vote. The financial position of the next
legislature would be dependent upon the decisions made by
the current legislature.
9:34:57 AM
Co-Chair Stedman understood that if the BSA was increased
by $680 for a total of $174.6 million, there would be a
shortfall for AMHS, community assistance, school
construction and deferred maintenance, and other services
that were funded in the budget in the prior year. The oil
price was already right under $74 per barrel, which would
not allow for a large margin because the goal was $78 per
barrel. He understood that the change listed on the slide
would require an increase of $50 million.
Mr. Painter agreed.
Co-Chair Stedman understood that there would not be much
headroom left in the budget and that the budget would be
"snug" when the committee was finished with it. He thought
it would be helpful for Mr. Painter to provide a column
list of items to illustrate how tight the budget would be.
Senator Bishop noted that the forecasting numbers were
good, but the numbers revolved around the price of oil. He
thought it was clear that Alaska needed to diversify its
economy.
Co-Chair Stedman commented that the fishing industry was
not receiving any assistance. He thought that the industry
was in a tailspin. The fishing industry was another topic
that should be considered by the committee, and the
committee would have to make difficult decisions over the
coming months.
9:38:16 AM
Mr. Painter added that the price forecasts by both the
futures market and the analysts were in the decline. The
Energy Information Administration (EIA) had a more hopeful
case, but it was generally the more optimistic forecaster.
If prices declined, there might be an even tighter budget
situation in 2025 even if the $74 per barrel price was
sufficient. He clarified that the decisions made during
session about higher oil prices could lead to an even
tighter budget in the future.
Mr. Painter pointed to slide 9, "Change in Budgeted
Positions." He recalled that he had presented a similar
version of the slide two years prior and Co-Chair Stedman
had asked for a new version of the information. The slide
compared the budgeted positions in the prior year's budget
management plan to the current governor's amended budget,
including the new amendments, in order to show the
increases. There were no areas within the budget where the
governor was reducing the number of positions. There were
quite a few areas where there were increased position
numbers. In total, there were 115 new positions. There were
no changes within the University of Alaska as the
university's positions were budgeted slightly differently.
The general trend was an increase in positions and not
towards a smaller government footprint.
Co-Chair Stedman asked if there was an increase in
population in the state.
Mr. Painter responded that population had remained flat.
9:40:22 AM
Co-Chair Olson understood that the department with the most
change listed on the slide was the Department of Law (DOL).
He asked Mr. Painter to expand upon the reason behind the
significant increase in positions.
Mr. Painter replied that there were a variety of positions
being added within DOL. The department added some
investigator positions that already existed in the
Department of Public Safety (DPS), but DOL needed its own
investigators. The department was also adding attorneys
that were in line with the originally projected need to
work on a bill on the change in the definition of consent.
The department was also adding a significant number of
intern positions that were now paid positions in the hopes
that more interns would become employees after the
completion of the internship.
Co-Chair Stedman asked Mr. Painter to remind the committee
of the vacancy rates within the various departments.
Mr. Painter responded that the statewide vacancy rate for
full-time, permanent positions was at about 14 percent. The
vacancy rate varied wildly between departments.
Co-Chair Stedman asked how the current vacancy rate
compared to historical vacancy rates.
Mr. Painter responded that the vacancy rate was in line
with the rates for the past four or five years, but
previously the state had experienced lower vacancy rates.
He explained that LFD typically budgeted a vacancy factor
in programs between 0 percent and 7 percent, with 7 percent
reflecting what was considered a high vacancy rate. Vacancy
factors did not typically exceed 7 percent, though
statewide rates had been in excess of 15 percent the last
few years for a variety of reasons; however, the rates had
started to come down in the last few months.
Mr. Painter concluded his presentation and relayed that he
would return to the committee in the future with the
additional requested information.
9:43:13 AM
Co-Chair Stedman thought it would be helpful for the
committee to review the information. He reviewed the agenda
for the following day's meeting.
ADJOURNMENT
9:44:40 AM
The meeting was adjourned at 9:44 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 031824 SFIN Fiscal Update 3-18-24.pdf |
SFIN 3/18/2024 9:00:00 AM |