HOUSE BILL NO. 349 An Act relating to agency programs and financial plans. REPRESENTATIVE FRED DYSON, SPONSOR, spoke in support of the legislation. He maintained that [results based budgeting] would provide the Administration with the best available information. He provided members with an example of the results based budgeting system used by the Municipality of Anchorage: "Facility Management" (copy on file). He noted that he used the budget system contained in the document when he was on the Anchorage Assembly. He explained that municipal departments present their activities and outputs in decreasing levels of priority. CHERYL FRASCA, MUNICIPALITY OF ANCHORAGE, ANCHORAGE, provided information on the results based system used by the Municipality of Anchorage. She discussed page 8 of the handout. She explained that the funding line would be similar to the state caps. Everything above the line would be funded; everything below the line would not be funded. If the funding level changes the funding line would move upward, leaving more unfunded programs. If a service were integral to the priority it could be moved up the funding level. If there were a funding surplus the funding level could be moved down. Ms. Frasca explained that some departments list debt service as their first priority; some departments prioritize their commissioner's office; others set their core functions as their first priority. She explained that the codes could identify mandated services. She emphasized the need to identify the level of funding mandated. In response to a question by Representative Dyson, Ms. Frasca acknowledged that the administration of the funding process is complicated. Infrastructure must exist for the system to work. She pointed out that information could be presented in this format without acquiring the infrastructure. The information can be used to provide clear guidelines to the departments in respect to what a service level should look like. She stressed the need to define activities and to give definition and division of service levels. The Anchorage Municipal Administration and Assembly negotiated the use of funding level budgeting. Representative Dyson asked if the state of Alaska could buy software from the Municipality of Anchorage. Ms. Frasca did not think that the software would be suitable. She observed that they are looking at new systems. Vice-Chair Bunde questioned if there is any reason the system could not be adapted and moved to a state level. Ms. Frasca responded that it is a good model to present to the legislature and citizens because it shows the level of service. She acknowledged that it would take time to implement fully, but noted that it could be used as a communication tool without actually producing the budget. Vice-Chair Bunde asked what would keep departments from placing a core function as number 10 and a burecratic function as number one. Ms. Frasca responded that it is important that the ranking process have integrity. She noted that the legislature could rearrange the ranking to reflect legislative priorities. The legislature would have the units of information specific to the activities. Representative Hudson noted that budgets are nothing more than estimates of what are needed and what will be available to meet the needs of the state on an annual basis. He asked if the mayor has flexibility to meet emergencies and in relationship to nonproductive items in the budget. Ms. Frasca noted that there is flexibility to move money within the departments. Representative Hudson noted that information is presented in a positive format and emphasized that lawmakers need to know the negatives. He asked if there is an opportunity for the departments to indicate the downside of not funding a function for the public record. Mr. Frasca observed that there are work sessions where department directors have an opportunity to answer questions. This is an opportunity to focus on what is below the funding line. Representative Croft referred to municipal priorities on pages 3 - 4. He agreed that it made sense to place services into components but emphasized that it is the legislature's duty to set the priorities. Representative Dyson acknowledged the concern. He stressed that it makes sense for those that are doing the work to take the first cut at setting the priorities. He pointed out that the Assembly has the opportunity to change the position of items on the priority list. He pointed out that they have the information available to understand the effect of changes. In response to a question by Representative Croft, Ms. Frasca noted that the most important items are ranked on the front page, but that those items near the cut line are the most vulnerable. The department submits the rankings in the mayor's budget. The funding line is drawn based on the Assembly's approval. Representative Croft questioned how often the Assembly changes the rankings. Ms. Frasca noted that the Assembly might choose to fund something that is below the line. The department would rank the item the next year based on available funds. Representative Croft suggested that reductions are unlikely to be done as cleanly as presented in the handout. He pointed out that [if park maintenance were below the cut line] it would be unlikely that all the maintenance for the 226 parks would be deleted. He suggested that items within the maintenance component might be identified for funding. Ms. Frasca agreed and pointed out that separate service areas can be created and funded. She observed that there is flexibility and emphasized that it is a way of presenting information. Representative Croft maintained that the system is similar to the current state process. Representative Lancaster questioned if the process saved time or money or if it provided better service. Representative Dyson responded that he did not know of any systems that worked better. Representative John Davies asked the mayor's level of involvement in determining prioritization. Ms. Frasca explained that the mayor reviews the service levels. The mayor has not changed the ranking and priorities of the departments. The critical decision is where the funding line is drawn. If a service falls below the funding line the mayor would look at what is above the line to see if there is a service that can be reduced are eliminated. Representative John Davies questioned how departments distribute the funding. Ms. Frasca noted that it is similar to the cap process set by the state legislature. Representative Dyson interjected that the city of Anchorage has a strong mayor system. He observed that the rankings could be changed. Representative Harris spoke in support of the legislation. He observed that the legislature is only in session for 4 months, while the administration works 12 months. He suggested that the Administration would have a better chance of doing something with the budget, but acknowledged that the legislature would have to manipulate the final product. BRAD PIERCE, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, spoke against the legislation. He observed that the Governor opposes the bill as an unnecessary burden on state agencies without producing meaningful results. He observed that the governor proposes and the legislature disposes. Prioritizing agency activities is a subjective process. He pointed out that state departments have a much broader function than municipal departments. He questioned what criteria would be used to rank governmental functions. The dilemma is that general government functions could be placed on the bottom, but that without general governmental functions like personnel and payroll nothing else would exist. He observed that the Legislative Research Agency, at various times, has been asked to make lists of state programs that are mandated vs. discretionary. They have produced a list of new programs added between 1981 and 1989 and lists of unique Alaska programs. Gordon Harrison wrote an essay for the Long Range Financial Planning Commission on the difficulty of defining basic services. The Long Range Financial Planning Commission itself produced a preliminary report that gave several different scenarios for cutting the budget by $500 million dollars using different criteria for what should be eliminated. All of these exercises so far have proven to be pointless but they might provide some guidance along the lines of what is being proposed in HB 349. Representative Hudson observed that the intent is to have a more direct dialog with the administration. He acknowledged that the administration functions under the direction of the legislature. He stressed the need for more information regarding the harmful affects of not funding items. Mr. Pierce responded that impact statements are created during the subcommittee process. Representative Hudson emphasized the need to work together with greater flexibility. Representative Whitaker questioned the Administration's objection. Mr. Pierce clarified that the subcommittee process is already doing the directives of the bill. Co- Chair Williams disagreed. Representative Harris maintained that the subcommittees must dig [for information]. He pointed out that there is a billion dollar deficient and that priorities are needed. Vice-Chair Bunde recalled instances where the relationship has been adversarial. Representative Foster MOVED to report HB349 out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HB 349 was REPORTED out of Committee with a "do pass" recommendation and with a zero fiscal note by the Office of the Governor.