HOUSE BILL 1005 "An Act making, amending, and repealing appropriations; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." 1 ALL FUNDS FISCAL SUMMARY Co-Chair Hanley spoke to the ALL FUNDS FISCAL SUMMARY passed during the legislative session. He stated that the numbers proposed in HB 1005 were based on that legislation. MIKE GREANY, DIRECTOR, DIVISION OF LEGISLATIVE FINANCE, provided a summary of general fund differences. During regular session, four appropriation bills had been passed, including SB 84, HB 412, HB 413 and SB 136. Mr. Greany provided Committee members a copy of the FY 96/97 All Funds Fiscal Summary sheet. [Copy on file]. The attachment reflects all the appropriations made during the regular legislative session. Mr. Greany noted that the general fund was recapped, indicating a general fund reduction from the FY96 authorized budget of $73.6 million dollars. The difference reflects the $1.2 billion dollar deposit made to the Permanent Fund under special transfers. HOUSE BILL 1005 "An Act making, amending, and repealing appropriations; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, briefed the Committee on a meeting held in the Senate Finance Committee which unfairly accused members from the Office of Management and Budget. She noted that concerns from that meeting had been raised by individual members of the majority and she offered to address them at this time. She stated that the long range intent was based on information shared with the majority. The draft resulting from the Long Range Planning Commission had been provided to Representative Hanley and Representative Phillips. Co-Chair Hanley countered that there had been public testimony and joint meetings on the Long Range Fiscal Planning issue. Ms. McConnell disagreed, advising that "many" members of the public were not allowed to participate or speak. She continued, the draft of the Governor's version was shared with Representative Hanley and Representative Phillips in mid April, 1996. Co-Chair Hanley responded that there had not been a final sign-off of that plan. Ms. McConnell reiterated for the record that the information 2 proposed was not a surprise to either body. The current year budget as proposed by the Governor contains $18.4 million dollars of reappropriation, whereas, the budget passed by the Legislature contained only $6.8 million dollars in reappropriation spending. She stressed that the original request contained "good" and "valid" projects. Ms. McConnell spoke to examples of the reappropriation proposed by the Administration such as the Bethel seawall. She noted that the request had been proposed by the Governor and delivered to the Legislature during the last couple of weeks of the Legislative session. The Children's Trust Fund also had not been included in the final reappropriation passed through the Legislature. Co-Chair Hanley asked when that request had been submitted. NANCY SLAGLE, DIRECTOR, DIVISION OF BUDGET REVIEW, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, responded that budget amendment had been submitted to Co-Chair Foster's office on April 18, 1996. Representative Grussendorf pointed out that the State of Alaska has known about the Bethel seawall condition for a long period of time. Ms. McConnell interjected that federal funds have been spent and to date there remains a $5 million dollar need. She added that Senator Stevens has authorized continuation of the project. Co-Chair Hanley asked when Senator Stevens had acquired the federal funding to provide such an authorization. Ms. McConnell informed members that those funds had been secured several years ago. In establishing fiscal priorities, the Governor's Office was not sure if they would be able to fund the Bethel seawall this session. Co-Chair Hanley stressed that priorities had changed from those proposed in December, 1995. Ms. McConnell pointed out that reappropriation are a "normal" part of each year's budget process. Discussion followed regarding the base school funding and the Bethel seawall. Representative Mulder spoke to the Bethel seawall, advising that the Legislature had not been presented with the request until the end of the legislative session. He thought the issue differed "dramatically" from the base school need. Ms. McConnell interjected that the Bethel seawall funding request had been presented by the Governor as a budget amendment in mid April, 1996. In response to Representative Parnell, Ms. McConnell explained that $250 thousand dollars of the power project fund had been reappropriated in the budget passed by the 3 Legislature. The requested amount would be the remainder needed. Ms. Slagle suggested that the $900 thousand dollars identified for the two reappropriation came from an administrative oversight. The funding source has not yet lapsed. Co-Chair Hanley asked if an amendment had been submitted for the Longevity bonus. Ms. McConnell advised that information had been determined from the last checks sent off for the longevity checks. When those checks were run, it provided a new estimate for the necessary amount of money needed. Ms. Slagle pointed out that at the end of March, 1996, the Department of Administration (DOA) presented information for an additional supplemental request of $1.6 million dollars. Representative Therriault questioned the amount remaining in the Fairbanks Youth facility appropriation. Ms. Slagle stated that balance was $43 thousand dollars. Ms. McConnell pointed out that the items included in HB 1005 are items which had been discussed during the last couple days of the Legislative session. The Administration is willing to negotiate all those items. Representative Therriault identified that the Legislature had placed $6 million dollars into the Children's Trust Fund; the Governor now requests an additional $2.5 million dollars. Ms. McConnell stressed that the items contained within the context of the legislation would be open to negotiation. Representative Therriault responded that he would not support an additional $2.5 million dollar addition to that fund. Representative Navarre reminded Committee members that the majority members had made amendments to the budget much later than those proposed by the Administration. He recommended that the Committee focus on whether each proposed project was worth consideration rather than the timing submitted. Inn response to Representative Kelly's question regarding the Children's Trust Fund intent, Ms. McConnell explained that decisions made for that spending authority are made by the Board members of that fund. Representative Kelly demanded that a plan be submitted. Co-Chair Hanley summarized that the reason for the Special Session resulted from a difference of opinion regarding fiscal spending. He asked if the Administration would consider placing the $2.5 million dollar Children's Trust Fund request into the general fund in order that the savings 4 not be spent. Ms. McConnell stated that the Administration was willing to consider all options. Representative Navarre pointed out that all departmental budgets have received significant cuts. He requested further information on the impact of not funding the Bethel seawall. (Tape Change HFCSS 96 - 1, Side 2). Ms. McConnell disclosed that work was in progress on the Bethel seawall. As long as there is a state-match to the federal dollars, the work will continue. Co-Chair Hanley briefed the Committee that it was his intention that today's meeting provide a better understanding of HB 1005, although, it was not his intent to pass the bill from Committee. Representative Kohring noted that he was a strong advocate of cutting the budget, not adding more money into it. Ms. McConnell offered to provide additional information regarding the magnitude of the cuts recommended to the budget through legislative action. In response to Representative Parnell's inquiry regarding the foundation formula, Ms. McConnell stated that the Board of Education is currently investigating how to make changes to the foundation formula. Proposals considered would include pupil transportation. Co-Chair Hanley indicated that Section #2 was language which identified short federal funding and that Capital Budget Receipts (CBR) would be used as necessary. Ms. Slagle pointed out that Section #2 contained two portions; the first addressing the "pay back" and the second clarifying how to make up the shortage. She agreed that both sections would require a 3/4 legislative vote. Representative Martin spoke to Section #3 which would provide for the May, 1996, Alaska Marine Highway contracts. He asked if it had been programmed for FY97. Ms. Slagle stated that it was a "one time" payment of $950 dollars per employee. Section #3 and #4 were requested as part of the FY97 monetary terms request, a one time bonus. Ms. Slagle continued, Sections #5 and #6 were supplemental requests for the University contracts and the Community College Federation of Teachers contracts. Section #7 also had been contained in the supplemental request; $720 thousand dollars needed for the consent decree 5 for the Copper River Highway. Representative Brown asked if those funds were required immediately. Ms. Slagle advised that there were certain things within the consent decree that needed to take place within the next 90 to 120 days. Ms. McConnell added, the Governor had recommended that the issue be addressed as soon as possible. The amount of money will not change unless, of course, delinquent penalties are attached. Co-Chair Hanley pointed out that Section #8 would provide $250 thousand dollars for the Alaska Marine Highway System. Ms. Slagle added that the request was made in conjunction with Section #35 in an attempt to add money back. This would be a restoration of a reduction to a budget cut already made. Ms. Slagle continued, Section #9a addresses extending Medicaid services in the amount of $1.5 million dollars for programs which provide alternatives to nursing home and institutionalization of the elderly. Representative Martin asked how much money was left in that lapse fund. KAREN PERDUE, COMMISSIONER, DEPARTMENT OF HEALTH AND SERVICES, responded that there was $3.2 million dollars in the Medicaid lapsing funds. Five million dollars in federal money exists which would be garnered by recycling the funds. The extension of the lapsed dates would be oriented toward providing basic services for the elderly and very poor and/or gearing the Department of Health and Social Services (DHSS) for being more cost effective in managing the program. Representative Brown commented on the amount of money lapsing in the Medicaid fund. She asked why services to the elderly and the basic poor were not being provided with those funds. Ms. Perdue explained that there was a 5% growth rate in the FY97 base. There is no room to expand the services in that base. Co-Chair Hanley added, those requests had not been submitted by the Administration. Ms. McConnell countered that the Medicaid program is very large. A small change in the percentage of growth will have a large impact on what may be available. Co-Chair Hanley asked the repercussions if the funds were not spent. Ms. Perdue explained that those funds would lapse back to the general fund. She added that the State was fortunate to have the Mental Health Trust Authority (MHTA) come forth with their own money. Ms. Slagle continued, Section #10 through #16 all relate to the FY97 labor contracts. The amount needed for the bargaining units for FY97 would be $7.3 million dollars and 6 $3.6 million dollars for the non-covered employees. Co- Chair Hanley summarized the expense to the State: $7.3 - Covered employees; $3.6 - Non-covered employees; $10.9 - FY97 $2 - Supplementals in previous years ______________________________________________ $12.9 - Total Ms. McConnell added that the proposed contracts would be the most cost effective package of contracts ever negotiated. Co-Chair Hanley objected; including the covered costs, the contracts would amount to $30 million dollars of increased spending over the next three years to the State. Representative Therriault agreed that the contracts would not provide a savings for the State. Ms. McConnell clarified that it would be a savings from what had been previously negotiated, providing lower contract amounts. Co-Chair Hanley asked if there had been a comparison made when negotiating the contracts for base level funding. He suggested that on an average, for a similar job class, State employees are paid an 8% higher salary than the private sector is paid. Ms. McConnell replied that there exists a range of differences and that many jobs pay much less. Co- Chair Hanley interjected, that the pay scale listing information differences had been taken from a report provided by the Department of Administration indicating that in some job classes, State employees are paid 8% more, which does not include benefits. Ms. McConnell stressed that the pay differential had been taken into consideration in the negotiations. Co-Chair Foster referenced Section #19. He asked the effect of appropriating those funds to the Department of Transportation and Public Facilities (DOTPF) for the Bethel seawall construction. Ms. Slagle explained if the money was not used for that purpose, it would lapse back to the general fund. Representative Martin noted that to date, $36 million dollars has been spent on the Bethel seawall. Representative Therriault thought that since those funds resulted from "electrician" money, they should be used for electrician needs throughout the State, and not for the seawall concern. Ms. Slagle continued, Section #20 represents the reappropriation requested amount of $1 million dollars for the site preparation of the Johnson Youth Treatment Facility. It would combine with the request provided in 7 Section #37. Ms. McConnell added, a critical situation existing in Southeast Alaska is currently having an impact on kids and families in Southeast Alaska and also on the facilities in Fairbanks, Bethel and Anchorage. The Administration believes that Aid to Families with Dependent Children (AFDC) lapse money would be an appropriate use for those lapsed funds. Co-Chair Hanley advised that this was an original Governor's budget request which was not funded by the Legislature. Representative Mulder agreed that a need exists within the State, although he did not feel that it was limited to Southeast. Commissioner Perdue elaborated that the Johnson Center has been designed and has been ready for the past six years. It is currently under a contempt order issued by Judge Weeks. Funding the request would be the most expedient way to address the over-crowding issue in the State. She emphasized that this is a "number one priority". Representative Mulder replied that the entire State is "bursting at the seams". (Tape Change HFC 96 - 2, Side 1). Commissioner Perdue spoke to Section #21 which would repay the State for health services provided in the schools by the federal government. The money would allow the school districts to apply for community based grants to work with families at risk. Ms. Slagle stated that Section #22 would reappropriate an anticipated balance for the Longevity Bonus grants to the Department of Administration for the continuation of the personnel automation and for developing changes to the State's personnel management system. Co-Chair Hanley noted that the Legislature over-appropriated the Longevity Bonus by an amount of $300 thousand dollars. Ms. McConnell added that Senator Frank had proposed a possibility of the automation computer system. She agreed that the project had not been submitted to the Legislature as a request. Ms. Slagle continued, Section #23 would address the need within the Department of Corrections for the conversion of Harborview to a correctional facility. ROBERT COLE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF CORRECTIONS, stated that the facility would handle medium level offenders. The premise would be to pull offenders from prisons across the State and place them in a therapeutic situation at Harborview. Representative Mulder questioned the cost per day. Mr. Cole replied the cost per day would be $177 dollars with a total 8 cost of $3.2 million dollars per year. This year, the U.S. Congress appropriated money for alcohol and drug abuse programming funds for all the states. Representative Mulder disclosed that the cost was too expensive. Mr. Cole explained that the direct cost of intervention will be more expensive than the basic care costs of a prisoner; an enriched program will often allow early release. The intent of intervention would be to end re-offense. Representative Mulder requested supporting documentation. Ms. Slagle continued, Section #24 would provide $750 thousand dollars of interest from the criminal restitution funds from the Exxon settlement to be used for a visitor interpretive facility. The interest money accumulates. There has been other projects completed with these funds and the projects must be associated with the spill. Representative Therriault suggested that a better use of those funds would be to offset general funds wasted on the Whittier Road. Ms. Slagle added, Section #25 would provide funds to be appropriated to the Department of Natural Resources (DNR) for the State land status geographic information system. Ms. McConnell added that the proposal had not been the full amount requested in the Governor's original request. She added, it was a high priority for the Department and would enable them to utilize it for economic development. Section #26 would identify $400 thousand dollars of anticipated carry-forward for the Governor's Office to be included in the base for executive operations for FY97. That amount had been reduced in Conference Committee. Co- Chair Hanley pointed out that money had been rolled forward. Ms. Slagle continued, Section #27 represents the Alaska Public Utilities Commission (APUC) designated program receipts account for regulatory cost charges in order to meet its duties under the Federal Telecommunications Act of 1996. That balance is $400 thousand dollars; the lapsed need would be $200 hundred thousand dollars. Section #28 deals with HB 412 which was adopted without an effective date. The request would provide an effective date of July 1, 1996, in order to provide effective operations for the State of Alaska. Section #29 would address the disparity problems with the foundation formula. It would provide a temporary fix for FY96; although, would not address FY97 problems. Co-Chair Hanley asked if the Governor would add SB 244 to the agenda for the Special Session. He thought that bill could address 9 concerns regarding the disparity problem. Ms. McConnell replied that the Governor has indicated that he will discuss with Legislative Leadership expanding the call for Special Session. He felt that there were a number of issues "left" in limbo. The Governor's intent is to address the primary matters first. She suggested that passage of SB 244 will not fix the budget at this time. The Governor has expressed his willingness and interest with the Legislature to address concerns on the table. Heated discussion followed among Committee members and the Administration regarding the concerns of leverage used by both bodies during the Special Session to get "interests" accomplished. Representative Therriault questioned the impact in not appropriating the amount of funding requested in SB 244. Co-Chair Hanley replied that $35 million dollars in federal funds were at risk. Representative Therriault identified that as a high risk gamble. Ms. McConnell stated that passage of Section #29 provision would guarantee that the money not be lost. Representative Parnell asked if the Governor supported HB 1005. Ms. McConnell replied that the Governor will discuss all concerns as soon as the budget issues are addressed. Representative Parnell inquired if additional requests were anticipated for special funding during the Special Session. Ms. McConnell stated that there could be some technical corrections. Representative Grussendorf noted that he did not support all items included in HB 1005. He suggested that there was room to negotiate. Representative Brown asked what other items are currently under discussion. Ms. McConnell replied that the Administration has concerns with the Municipal Revenue Sharing bill (SB 20) and other items and requests in the limbo file. Co-Chair Hanley concluded that the Leadership has interest in the disparity bill. HB 1005 was HELD in Committee for further consideration.