Legislature(2025 - 2026)SENATE FINANCE 532
01/28/2025 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Continued: Office of Management and Budget | |
| Fy 26 Overview: Legislative Finance Division | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
January 28, 2025
9:05 a.m.
9:05:14 AM
CALL TO ORDER
Co-Chair Hoffman called the Senate Finance Committee
meeting to order at 9:05 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Mike Cronk
Senator James Kaufman
Senator Jesse Kiehl
Senator Kelly Merrick
MEMBERS ABSENT
Senator Donny Olson, Co-Chair
ALSO PRESENT
Lacey Sanders, Director, Office of Management and Budget;
Alexei Painter, Director, Legislative Finance Division;
Senator Cathy Giessel.
SUMMARY
CONTINUED: OFFICE OF MANAGEMENT and BUDGET
FY 26 OVERVIEW: LEGISLATIVE FINANCE DIVISION
^CONTINUED: OFFICE OF MANAGEMENT and BUDGET
9:06:46 AM
LACEY SANDERS, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
(OMB) finished discussing the presentation from January 27,
2025. She specifically pointed to the 10-Year Plan as
proposed by the governor.
Co-Chair Hoffman wondered whether the governor had a
direction on new revenue measures.
Ms. Sanders replied that the governor did not introduce any
new revenue measures.
Co-Chair Hoffman stressed that the governor should address
that issue.
Co-Chair Stedman agreed, and queried the governor's
position on the Permanent Fund Dividend.
Ms. Sanders agreed to have the conversations with the
governor.
9:10:53 AM
Co-Chair Hoffman stressed that there was a requirement to
balance the budget.
Senator Kiehl recalled former revenue bills by the governor
which passed the legislature.
Ms. Sanders replied that she had referred to proposals in
plans.
9:15:04 AM
AT EASE
9:15:54 AM
RECONVENED
^FY 26 OVERVIEW: LEGISLATIVE FINANCE DIVISION
9:16:11 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
(LFD) introduced the staff of LFD.
Co-Chair Hoffman acknowledged Senator Cathy Giessel in the
room.
Mr. Painter discussed the presentation, "Overview of the
Governor's FY 26 Budget" (copy on file). He looked at slide
2, "Outline":
• FY25 Recap and Update Vetoes, Supplementals
• Fall Revenue Forecast
• FY26 Governor's Budget
• Long-Term View
Mr. Painter addressed slide 3, "FY25 Recap: Adjournment
Budget":
• When the legislature adjourned last year, there was
a projected budget surplus of $66.3 million in FY24
and $7.8 million in FY25.
The legislature did not include any provision to
fill a potential deficit in FY25 if revenue falls
short of projections.
• Capital budget appropriations totaled $565.5 million
UGF across FY24 supplementals and FY25.
• Included $174.6 million of outside-the-formula K-12
funds ($680 in Base Student Allocation, or about 11
percent of total foundation funding).
• Increased funding for Department of Corrections,
Fire Suppression Preparedness and Disaster Relief Fund
to try to avoid routine supplementals.
• Fully funded all statewide operating items to
statutory levels.
9:21:03 AM
Mr. Painter displayed slide 4, "FY 25 Recap: Governor's
Vetoes":
• Largest UGF operating budget vetoes:
$20.0 million for Community Assistance Fund to reach
$90 million balance
$11.9 million to school districts to satisfy federal
Maintenance of Equity requirement for FY22
$11.1 million for Broadband Assistance Grants
$10.0 million for Alaska Seafood Marketing Institute
$10.0 million for AMHS backstop
$7.5 million for Disaster Relief Fund
$5.4 million for UAF's Tier 1 Research
$5.2 million for additional funds for K-3 students
• Capital vetoes included 34 percent of UGF FY24
supplementals and 12 percent of UGF FY25 projects
(mostly legislative district projects).
9:24:05 AM
Mr. Painter highlighted slide 5, "FY25 Recap: Surplus to
Deficit":
• After vetoes, the FY25 budget had a projected $146.9
million surplus based on the Spring Revenue Forecast.
• The Fall Revenue Forecast decreased the FY25
projection by $219.9 million. This turned the surplus
into a projected $81.5 million deficit (after
adjusting budgetary estimates).
• The FY25 budget now has an unfilled deficit that
will likely need to be addressed this session (unless
oil prices rise significantly).
Mr. Painter looked at slide 6, "Fall 2024 Revenue
Forecast":
• DOR's Fall 2024 Forecast shows lower oil prices and
production in both FY25 and FY26.
• Lease expenditures (which are deducted in the
production tax calculation) are also up significantly.
• The result is lower projected revenue in FY25 and
FY26.
9:26:45 AM
Mr. Painter discussed slide 7, "Daily ANS Price, November
2022- January 2025 He displayed slide 8, "Percent of
Market Value Draw from Permanent Fund
9:30:03 AM
Co-Chair Stedman requested a chart that used the realized
earnings.
Mr. Painter agreed to provide that information.
Mr. Painter pointed to slide 9, "FY25 Budget Sensitivity
Chart He addressed slide 10, "FY 25 Governor's
Supplemental Budget":
• The Governor introduced a fast-track supplemental
bill with two items:
$50.0 million UGF to AIDEA as backstop for an AKLNG
contract.
$15.0 million UGF to the Disaster Relief Fund, which
does not have enough general funds to pay pending
disaster costs.
• In addition, the Governor's operating bill includes
a $10.0 million supplemental appropriation to ASMI as
an FY25-27 Multiyear appropriation.
• The operating budget also includes Constitutional
Budget Reserve Fund deficit-filling language for FY25,
up to $200.0 million. This should be moved to the
fast-track supplemental bill because otherwise those
appropriations are not funded.
• Additional supplemental requests are due on the
15thday of the legislative session. These are expected
to include items in the Department of Corrections,
Fire Suppression, and Medicaid, among others.
9:35:27 AM
Co-Chair Stedman looked at slide 9, and wondered about the
dollar price of oil to break even.
Mr. Painter that a $76 annual oil price was needed to
balance the budget.
Mr. Painter spoke to slide 11, "FY26 Adjusted Base":
• The starting point for the next year's budget is the
Adjusted Base, which is the prior year's budget less
one-time appropriations plus current statewide policy
decisions (such as salary adjustments and formula
changes) needed to maintain services at a status quo
level.
• Starting in FY25, LFD modified the Adjusted Base to
include formula changes. Previously, it was difficult
to distinguish policy changes from changes in formula
amounts. Now, formula-driven adjustments (for items
like the K-12 formula, debt service, or retirement
payments) will be reflected in the Adjusted Base,
making policy changes by the Governor easier to see.
• For formula items funded at a partial amount (such
as the PFD), the Adjusted Base would be the same
formula carried forward into the next year (so 25
percent of the POMV draw, which was the formula used
in FY25, is carried forward into the FY26 adjusted
base).
9:40:27 AM
Mr. Painter looked at slide 12, "FY 26 Adjusted Base
(cont): One-Time Items":
Largest One-Time Item removed in Adjusted Base is K-
12 Additional Foundation Funding ($174.7 million), all
other items total $53.2 million.
Mr. Painter pointed to slide 13, "FY 26 Adjusted Base
(cont): Formula Adjustments":
• K-12 Formula reduced due primarily to projected
3,777 student (3.6 percent) decrease in brick-and-
mortar students (only partially offset by a 978-
student increase in correspondence students).
9:45:09 AM
Senator Merrick wondered whether the program would be paid
off, if the moratorium on school debt reimbursement were to
continue.
Mr. Painter replied that it would not be for a long time,
because the refinancing could continue.
Mr. Painter continued to discuss slide 13:
• Retirement contributions up due to higher PERS and
TRS past service costs based on June 30, 20223
valuations.
• School debt reimbursement continues to decline due
to ongoing (since 2015) moratorium on new debt, which
is scheduled to end on July 1, 2025.
Co-Chair Stedman surmised that the unfunded liability
created by previous tiers result in a "past service cost."
Mr. Painter agreed, and explained that the technical term
was "past service costs."
Mr. Painter addressed slide 14, "FY 26 Adjusted Base
(cont): Salary and Benefits Adjustments":
• Eight Executive Branch unions are currently
negotiating, plus one University of Alaska union. This
includes the largest executive branch unions, so there
may be significant future amendments as these
contracts are negotiated.
9:51:22 AM
Co-Chair Stedman recalled that the salary adjustments came
in late in session.
Mr. Painter highlighted slide 15, "Governor's FY26 Budget
Co-Chair Stedman wondered the number of a targeting reserve
balance in the CBR.
9:54:49 AM
Mr. Painter explained the services of the CBR, and cash
flow needed about $500,000, and also a shock absorber.
Co-Chair Stedman recalled that different leaders had stated
that the CBR needed around $2.5 billion, which he felt was
a bit low.
Co-Chair Hoffman stressed the OMB director should keep the
committee informed of communication from the federal
government around funding.
10:00:35 AM
Mr. Painter discussed slide 16, "Governor's FY26 Budget
(Cont.) He pointed to slide 17, "Governor's FY26 Budget
(Cont.)
Co-Chair Stedman asked about the basic facilities and the
certain allocation in the constitution.
Mr. Painter replied that within the limit, one-third shall
be reserved for the capital budget.
10:05:00 AM
Senator Kiehl stressed that the deficit draw in the CBR was
concerning.
Mr. Painter looked at slide 18, "Governor's FY26 Budget
(Cont.)
• Agency Operations total $4.5 billion UGF, $57.0
million UGF (1.3 percent) above the Adjusted Base:
$7.5 million UGF increase to Department of
Corrections to replace federal funding from manday
billings.
$6.6 million UGF for multiple increments for
Department of Public Safety, Alaska State Troopers,
including reopening the Talkeetna post, adding
Troopers in Kotzebue, and adding additional funding
for overtime.
$5.9 million UGF to Department of Health for SB 189
impacts on child care assistance.
$4.4 million to Family and Community Services,
Alaska Psychiatric Institute to address a structural
deficit due to reduced federal payments.
No significant budget reductions.
Mr. Painter pointed to slide 19, "Governor's FY26 Budget
(Cont.)":
• Statewide Items total $414.5 million UGF, $8.6
million (2.0 percent) below the Adjusted Base:
Statutory funding for debt service, REAA Fund
deposit, retirement system, and Community Assistance
Fund.
• Community Assistance Fund remains below the $90.0
million full balance due to vetoes, so the FY26
distribution will be $23.3 million based on the
Governor's budget.
$13.0 million UGF deposit to Disaster Relief Fund,
matching FY25 post-veto number but below $16.8
million average usage.
$25.8 million UGF deposit to Fire Suppression Fund,
$8.6 million lower than FY25 deposit and far short
of the $53.5 million average UGF cost of fire
suppression activity.
Co-Chair Stedman recalled that the committee should examine
using the fund again for the fire management.
Mr. Painter discussed slide 20, "Governor's FY26 Budget
(Cont.)":
• Capital Budget totals $282.4 million UGF, $2.8
billion all funds. This is a 14.6 percent reduction
from FY25 and a 38.2 percent reduction from the total
for the 2024 session across both fiscal years.
$154.6 million UGF (55 percent of total UGF) is to
match federal funds.
$33.5 million UGF for AHFC capital projects.
$19.5 million UGF for IT projects across five
agencies.
$17.3 million UGF for University of Alaska projects
(most of which would be more properly reflected as
operating budget items).
$6.5 million UGF to the Department of Public Safety
for a Pilatus PC-12 aircraft.
$6.5 million UGF for AEA's Dixon Diversion project.
$6.3 million DGF for AEA's Renewable Energy Fund,
which funds the top six projects on the priority
list.
$5.6 million UGF to the Department of Fish and Game
for Gulf of Alaska Chinook Salmon research.
No funding for school construction or major
maintenance.
10:19:30 AM
Mr. Painter pointed to slide 21, "Governor's FY26 Budget
(Cont.)":
• Also notable is what is not yet in the budget:
o Educationno outside the formula funds or BSA
increase (there was $174.7 million outside the
foundation formula and $7.3 million outside the Pupil
Transportation formula in FY25). The Governor
mentioned a planned $200.0 million K-12 funding bill
in his budget release press conference.
o Medicaidthe Governor's budget does not contain an
increase to Medicaid funding, but the Department of
Health stated that the projection will be trued up in
a future amendment. Preliminary projections indicate a
need for an additional $19.6 million UGF.
o Ongoing Employee Bargaining Negotiations nine
unions are currently negotiating new contracts to
begin in FY26. Legislative Finance estimates that a 3
percent increase (in line with what the Supervisory
Union will receive in FY26) would cost about$29.4
million UGF.
10:21:20 AM
Mr. Painter addressed slide 22, "75/25 PFD Alone Won't
Balance the Budget He pointed to slide 23, "UGF Revenue
and Budgets, FY14-25
Mr. Painter looked at slide 24, "Long-Term Revenue
Outlook":
• The Department of Revenue's Fall Forecast projects
that oil prices will fall from $70.0 in FY26 to $68-69
from FY27-32, then increase slightly after that.
• Oil production is projected to increase from 479.5
mbbl/day in FY26 to 656.9 mbbl/day in FY34.
• The Permanent Fund is projected to earn 7.65 percent
per year.
10:26:12 AM
Mr. Painter discussed slide 25, "Earnings Reserve Account
(ERA) Sufficiency":
APFC's Statutory Net Income projection for FY25+ is
6.25 percent, compared to inflation of 2.50 percent
and a 5.00 percent POMV draw. This leads to a
projected decline in the balance of the ERA balance.
APFC's projections show that the year-end ERA
balance will drop below the following year's POMV draw
amount in FY32, assuming statutory inflation proofing
each year. That means that when the year begins, the
ERA won't have enough money to pay out the entire POMV
draw for the year and will have to rely on current-
year earnings.
LFD's probabilistic modeling shows an 46 percent
chance of having an insufficient ERA balance to make
the full POMV draw over FY26 FY35, assuming full
inflation proofing and statutory POMV draws. If
inflation-proofing is suspended when the ERA balance
drops below the following year's POMV draw, that drops
to 33 percent.
10:30:34 AM
Co-Chair Stedman requested an examination of the asset
allocation of the Permanent Fund.
Mr. Painter looked at slide 26, "Long-Term Fiscal Outlook
and Governor's 10-Year Plan":
• LFD modeling baseline assumes the FY25 Management
Plan grows with inflation and all statewide items are
funded to statutory levels (including the PFD), or
FY25 levels if there's no clear funding formula to
follow.
• This results in substantial deficits every year in
the modeling window, illustrating Alaska's continued
structural budget deficit.
10:33:12 AM
Mr. Painter pointed to slide 27, "LFD Baseline Model, No
ERA Overdraws He addressed slide 28, "LFD Baseline Model
with ERA Overdraws
Mr. Painter discussed slide 29, "Long-Term Outlook and
Governor's 10-Year Plan (Cont.):
• Policy changes in Governor's 10-Year Plan:
Governor's FY26 agency operations and capital
budgets are below the FY25 levels.
Only other difference is reduction of funding to
Fire Suppression Fund.
Unlike prior years, Governor assumes 2.5 percent
growth with inflation rather than 1.5 percent
growth.
• Assumption Differences in LFD Model:
Governor assumes supplementals and lapse cancel out
after FY25, LFD includes $50.0 million placeholder.
LFD includes a placeholder for new school debt after
the moratorium ends in 2025, Governor does not.
LFD uses Permanent Fund projections from APFC's
December report, which corrects an error that was in
the DOR Forecast.
10:38:49 AM
Mr. Painter highlighted slide 30, "Long-Term Outlook and
Governor's 10-Year Plan (Cont.) He pointed to slide 31,
Governor's 10-Year Plan in LFD Model, No ERA Overdraws
10:40:21 AM
Mr. Painter addressed slide 32, "Governor's 10-Year Plan in
LFD Model with ERA Overdraws
Senator Cronk asked about the increase in oil production
but not increase in revenue.
Mr. Painter replied that new oil was not considered the
same as oil that was already in production.
10:44:02 AM
AT EASE
10:44:31 AM
RECONVENED
Co-Chair Hoffman stated that the upcoming Friday meeting
will be cancelled.
ADJOURNMENT
10:45:10 AM
The meeting was adjourned at 10:45 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012725 OMB 10-Year_Plan_FY2026_12.12.24.pdf |
SFIN 1/28/2025 9:00:00 AM |
FY26 Budget |
| 012825 LFD FY26 Overview SFIN.pdf |
SFIN 1/28/2025 9:00:00 AM |
FY26 Budget |
| 012825 LFD Response to SFIN Questions.pdf |
SFIN 1/28/2025 9:00:00 AM |
FY26 LFD Budget Overview |