HOUSE BILL NO. 113 "An Act extending lapse dates for certain prior year appropriations; making supplemental, capital, and special appropriations; and providing for an effective date." ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR provided members with a sectional analysis of HB 113 (copy on file). In introductory remarks, she noted that there has been significant reforms in the supplemental budget process over the last two years. She emphasized that containing supplemental spending has been an Administration priority. She observed that the legislature has indicated that some areas should be included in a supplemental instead of fully funded in the operating budget. She observed that specific disaster funding has been included in supplementals. She stressed that $8.5 million dollars of the Governor's FY 97 supplemental request was identified during the FY 97 operating budget process. She did not recommend any changes in the manner that judgement and claims are handled. There are approximately $2.8 million dollars in judgement and claims. Ms. McConnell stated that the Administration is suggesting that money paid in Cleary fines be appropriated into the 4 Capital Holding Account to indicate to the court that the State is attempting to deal with prison overcrowding. Appropriations from the account would still be part of the normal budget process. Ms. McConnell noted that unanticipated expenses total $4.5 million dollars. She observed that a request for supplemental funding of $1.5 million dollars may be submitted for Power Cost Equalization. Ms. McConnell reviewed criteria for inclusion in the Governor's supplemental request. Some items were included due to their urgency. McLaughlin/Fairbanks Youth Centers, and Perseverance Trail fall under this category. She acknowledged previous problems with assumptions that supplementals would be granted. She urged that decisions on supplemental requests be made in a timely manner. She noted that additional requests may be included to help Southeast Alaska deal with mill closures. In response to a question by Co-Chair Hanley, Ms. McConnell noted that the capital budget would be introduced within the next two weeks. She clarified that the supplemental request for Power Cost Equalization would not be greater than $1.5 million dollars. An addition of $1.5 million dollars would result in a total of $17.3 million dollars for Power Cost Equalization. She explained that the increase would be in general fund dollars. She observed that an increase in the price of oil has increased state revenues in addition to increasing fuel prices. She noted that additional funding for Marine Highway fuel costs were allocated from the General Fund. Representative Davies questioned if judgments and claims are paid prior to their authorization in a supplemental appropriation. He asked why judgments and claims would not be averaged and funded in the operating budget as is done for Emergency Services. Ms. McConnell thought that judgments and claims were not paid until the appropriation is authorized. She compared judgments and claims to disaster spending. She emphasized that disasters incur immediate expenditures. Representative Davies noted that citizens must wait for payments from the State. He referred to a constituent that may need to file bankruptcy due to his inability to receive payment. He questioned if the variation is greater. DAN SPENSER, SENIOR ANALYST, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR explained that judgments and claims are outside of the normal scope of operations. Auditors have suggested that there should be a specific 5 appropriation for the payment of a judgement or claim. Generally, judgments and claims are not paid unless there is a specific appropriation. Representative Martin commended Ms. McConnell for cleaning up the supplemental. In response to a question by Representative Martin, Ms. McConnell clarified that leasing agreements are on the fiscal year. She explained that because lease payments are due on the first of the month, the State receives bills in June for payment on July 1. She explained that these bills are paid on June 23, so that they arrive on time. These costs are transferred into the new fiscal year after that year's accounting system is on line. Representative Martin expressed concern with the identification of an item as an "emergency" procurement. Ms. McConnell replied that there are no emergency procurements in the supplemental request. She emphasized the need to obtain appropriations prior to an emergency. Representative Kohring asked for further clarification regarding advanced payments. SHARON BARTON, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF ADMINISTRATION reiterated that checks for lease payments are sent in FY 97 but issued and accounted against FY 98 appropriations. She maintained that there is no surplus. Representative Kohring suggested that all end of year expenditures are not legitimate. Ms. Barton offered to review expenditures. DEPARTMENT OF ADMINISTRATION Section 1 (a) $1,018.7 million dollars - Leasing. (Tape Change, HFC 97-26, Side 2) Ms. Barton explained that the FY 97 lease budget was reduced with the expectation that supplemental appropriation would be needed. She emphasized that long term lease savings are anticipated. Co-Chair Hanley observed that if the supplemental request is approved that the total FY 97 appropriation would be $400.0 thousand dollars more than the Governor's FY 97 request. Ms. Barton recalled that there was an attempt to manage the budget down by $400.0 thousand dollars. 6 DUGAN PETTY, ACTING DEPUTY COMMISSIONER, DEPARTMENT OF ADMINISTRATION discussed the Department's FY 97 lease appropriation. He pointed out that the Department was in a lease negotiation during the FY 97 appropriation process. The Department focussed on concentrating resources on the biggest, highest cost leases in hopes of reducing costs. The Department was not successful in obtaining a lease/purchase agreement. He noted that there were some unanticipated claims. Co-Chair Hanley demonstrated that after the addition of the supplemental to the FY 97 appropriation, the FY 98 request will be $700 thousand dollars less than the total FY 97 appropriation. He asked how the reductions will be made. Mr. Petty acknowledged that the FY 98 appropriation is ambitious and aggressive. It is designed to challenge the Department to continue negotiations to reduce costs. He explained that at the time the request was submitted, the Administration was in the process of negotiating the purchase of the Bank of America building. Co-Chair Hanley summarized that the Administration is attempting to manage leases down by approximately $1 million dollars. Ms. McConnell stressed that the FY 98 Budget Plan acknowledges that this area will not be fully funded in the operating budget. Co-Chair Hanley questioned the true amount that the State is obligated for leases and how much can be managed down. He asked if there would be savings from the purchase of the Bank of America building in FY 98. Mr. Petty stated that there would be savings in FY 98. He explained that the State occupies 60,000 square feet of space in the building, representing approximately $1 million dollars in lease costs. He explained that there would be approximately $500 thousand dollars in general fund savings after maintenance and operation costs. In response to a question by Representative Davies, Mr. Petty clarified that lease finance and project development costs which include tenant improvements and moving expenses would be financed over 19 years. The $500 thousand dollars savings factors in approximately $3.5 million dollars in private tenant income in FY 98. He discussed financing scenarios. The State receives funds for the project cost initially. These will go into an account that will earn interest in the first couple of years. The full amount of debt service does not begin until the third or fourth year. Project development funds would be spent over the first three years. Representative Martin asked if the State will pay penalties for breaking any long term leases. Mr. Petty clarified that the Administration intends to move after leases expire. 7 Leases expire in the year 2000. He did not anticipate any interim moves. He referred to the Frontier Building lease. He observed that the lease cost is still higher than the State will pay on a purchase. He added that the State may have to pay premium rent on any hold over provisions. Representative Kohring noted that the Bank of America building is a premium building. He asked why the State does not purchase a less expensive building. Co-Chair Hanley noted that debate will occur when legislation pertaining to the purchase reaches the Committee. Section 1(b) $317.5 thousand dollars - Office of Public Advocacy Ms. Barton observed that the Administration estimated that there would be a $500 thousand dollar shortfall in the FY 97 appropriation to the Office of Public Advocacy. The Office of Public Advocacy has reduced the estimated shortfall to $317.5 thousand dollars. She emphasized that the request reimburses contractual expenses. Co-Chair Hanley noted that the total FY 97 appropriation will be $260 thousand dollars greater than the Governor's FY 98 request with the addition of the supplemental. Ms. Barton pointed out that caseloads are increasing due to new legislation and additional patrol officers. She emphasized that the caseload is driven by court appointed cases. Cases that are in conflict of interest with the Public Defender Agency are also referred to the Office of Public Advocacy. BRANT MCGEE, DIRECTOR, OFFICE OF PUBLIC ADVOCACY, DEPARTMENT OF ADMINISTRATION observed that the Office of Public Advocacy was created in 1984. Out of 13 sessions the Office of Public Advocacy has been forced to ask for a supplemental. He acknowledged the difficulty of predicting the caseload. He stated that it is possible to estimate the cost per case. In response to a question by Co-Chair Hanley, Mr. McGee stated that the Alaska Court System contracted for the services that the Office of Public Advocacy now provides. The court spent $956.00 dollars per case for cases contracted in 1983. The Office of Public Advocacy spent $606.00 dollars a case in FY 97. The Office of Public Advocacy reduced the cost per case by more than a third. Co-Chair Hanley noted that the Public Defender Agency received fiscal note funding that had been allocated to the Office of Public Advocacy in legislation passed in FY 97. He acknowledged that the supplemental for the Public 8 Defender Agency would have been greater without the additional fiscal note funding. In response to a question by Representative Martin, Mr. McGee reiterated that the Office of Public Advocacy can provide services cheaper than contracting through the Alaska Court System. Section 1(c) $268.9 thousand dollars - Public Defender Agency Ms. Barton noted that there were four fiscal notes authorized for the Public Defender Agency in FY 97. All four fiscal notes were reduced. The total reduction was approximately $275 thousand dollars. She emphasized that the Public Defender Agency had a 19 percent increase in caseload. By keeping positions vacant the Public Defender Agency was able to reduce the estimated shortfall from $475 to 268.9 thousand dollars. BARBARA BRINK, DIRECTOR, PUBLIC DEFENDER'S AGENCY emphasized that it is difficult to predict the caseload. She observed that the Agency handled 17,800 cases in FY 97 at an average cost of less than $500 hundred dollars per case. The Agency anticipates exceeding 18,600 cases. She maintained that there is a minimal level of service that must be provided in each case. She stressed that the Agency has tried to maintain vacancies as they become available. She pointed out that 6 of 13 offices in the State have only 1 or 2 lawyers. She noted the difficulty of maintaining vacancies. Co-Chair Hanley observed that the FY 98 budget request is $550 thousand dollars short of full funding. Representative Grussendorf pointed out that there has been a lot of law and order legislation passed in the past years. Ms. Brink noted that many of the fiscal notes were reduced substantially. The FY 96 supplemental was also reduced and some of the fiscal note funding went to make up that shortfall. Mr. McGee said he could not remember ever receiving full funding on a fiscal note. He stressed that fiscal note costs are accumulative. One bill may not make a big difference, but accumulative legislation has made a big impact. Co-Chair Hanley summarized that the cost of doing business is reflected in the supplemental. The addition of the supplemental request would make the Public Defender Agency $60.0 thousand dollars below the Governor's original FY 97 request. 9 Section 1(d) $65.6 thousand dollars - Elected Public Officials Retirement System Ms. Barton noted that the request reflects three elected public officials that will retire in FY 98. Section 1(e) $243.3 thousand dollars - Vintage Park Settlement Section 1(f) $104.0 thousand dollars - Department of Environmental Conservation Lab Claims Mr. Petty explained that Section 1(e) funds an unanticipated settlement that occurred with a lease acquisition in Juneau. Five or six agencies are being brought into one location. (Tape Change, HFC 97-27, Side 1) Mr. Petty explained that leases were vacated to allow for a Juneau One Stop. After appeals and arbitration the State decided to settle. He maintained that the cost to decide the issue in Supreme Court would have exceeded the cost of settling with the second low bidder that raised the appeal. Approximately $53 thousand dollars was paid on back rent. The hearing officer cost $20 thousand dollars. In response to a question by Co-Chair Hanley, Mr. Petty explained that the Department of Administration is represented by general government attorneys. Department of Law attorneys provide representation as part of their general fund budget. In Section 1(f) the Department of Administration is being represented by an attorney from the Department of Transportation and Public Facilities section of the Department of Law. This is not covered in the Department of Law's general fund portion. The client agency is charged. The costs have been paid. Co-Chair Hanley asked for more information regarding the policy on settlements. Mr. Petty explained that the building that was required through the RFP process for the Juneau One Stop has been occupied. Co-Chair Hanley asked if procedures can be tightened so that bid disputes do not arise again. Mr. Petty noted that the RFP document has been revised. He stressed the belief that the Department of Administration would have won the appeal. 10 Representative Davis asked the status of other One Stop office's in the State. Mr. Petty stated that there are approximately five one stop consolidations. He pointed out that the consolidations are intended to solve problems with service provision. He did not know if there would be any savings. He discussed progress in one stop offices around the State. All offices are constrained by what leases are expiring. There are five different programs with five different offices for each consolidation. An attempt has been made to locate offices in one of the current spaces. He observed that in the Kenai/Soldotna area that none of the existing spaces were sufficiently large. Mr. Petty discussed Section 1(f). He noted that the claim is the result of a lease acquisition awarded in 1989. A bid for a laboratory for the Department of Environmental Conservation was let out in 1989. A claim was filed in 1994 over a dispute with the developer regarding building requirements. The supplement request represents funding for the Department of Law to defend against the claim. He maintained that the claim was not filed timely.