HOUSE BILL NO. 311 An Act making appropriations, including capital appropriations, supplemental appropriations, and appropriations to capitalize funds; and providing for an effective date. 2:59:51 PM Vice-Chair Stoltze MOVED to ADOPT work draft 25-GH12007\C, Kane, 3/8/08 as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. Co-Chair Meyer commented that the adopted work draft is a stripped down version of the Governor's proposed capital projects including federal funds and associated matches. It will provide a base capital budget. He noted the Senate had adopted a companion bill to HB 311. Co-Chair Meyer invited Ms. Rehfeld to speak to the $42 million dollars mostly for specified technology (IT) system-wide changes. 3:01:31 PM KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, discussed how the Administration arrived at the proposed budget. In December 2007, the Administration rolled out a two year plan, which anticipated additional expenditures in FY08 to be funded through the supplemental bills. Additionally, they had requested the use of FY08 surplus for additional costs associated with capital projects. Overall, the intent for the FY09 budget was to keep total General Fund dollars including the capital & operating expenditures with an increase over FY08 of about 4.5%. When the Administration moved through the budget process, identifying areas that needed change for FY09, including some "must haves" even though, all of the projects were not included. There were many projects the Administration hoped to include in the budget, but simply did not have adequate General Funds. In FY08, the Administration requested a total of $34 million General Fund surplus dollars. She believed the intention was clear and included th in the capital budget bill with a June 30 effective date. The total amounted to $29 million General Fund dollars. For FY09, there are twenty-seven requested IT projects, totaling $24 million of which, $2 million of which are General Fund dollars. 3:05:30 PM Representative Gara questioned if even though the IT expenses are necessary, the Administration decided not to place them in the operating budget because then they could not meet the 4.5% limit funding for FY09. Ms. Rehfeld clarified that the 4.5% increase was a benchmark number the Administration attempted to achieve for FY09 capital and operating budgets. Additionally, the Administration requested the use of $34 million dollars from the FY08 surplus. Representative Gara understood that the Governor was attempting to reach a 4.5% budget increase projection and in order to meet that goal was proposing use of funds outside FY09 dollars. He emphasized that action creates an artificial budget goal. Ms. Rehfeld countered that the Administration has attempted to separate the two years in isolation but rather roll out a comprehensive package indicating expenditures and savings. She acknowledged that clearly the Legislature will have opportunities to change that plan. 3:08:13 PM Representative Hawker identified the $2.66 million federal fund sources & the $5.2 million IT funding source services. He asked where those dollars originated from. Ms. Rehfeld replied that fund capitalization occurred in the past Enterprise Technology Services (ETS) fund. Representative Hawker pointed out that the other funds had not been reported as General Funds. Ms. Rehfeld thought it could have originated from other funds used to pay agency charge-backs. She added that a discussion of the Information Services Fund (ISF) would require other testimony. She commented that the capitalization had been included in the operating budget and that the $5 million is a General Fund expenditure. Representative Hawker pointed out that nearly all of the $36.8 million dollars originated from the General Fund. Ms. Rehfeld agreed. 3:09:54 PM Co-Chair Chenault asked if the Administration had used the master lease line of credit to pay for the IT projects. Ms. Rehfeld deferred that question because the Administration is not proposing to use that for the budget. She did not know if it had been used in the past. Co-Chair Chenault stated that the credit line is an issue currently on the table and he wanted to know if it was intended to use for IT projects. Representative Gara asked if the Governor's proposal to pay down Teacher Retirement System/Public Employees Retirement System (TRS/PERS) debt was included in the operating budget. Ms. Rehfeld responded that in the Administration's proposal that expenditure comes out of the FY08 surplus. Representative Gara stressed it is important to make payment toward that debt and be included in the capital budget this year. Ms. Rehfeld advised that the plan is to pay down the TRS portion of the unfunded liability so that it would reduce the annual contribution by about $43 million dollars. The Alaska Retirement Management (ARM) Board supports that choice. Representative Gara questioned if paying down the debt could save long-term dollars for the State. Ms. Rehfeld stated the goal is intended to relieve some of the pressure on the direct contribution by paying down the unfunded liability. In order to pay it down more quickly, the State will need to be more aggressive, and some discussed options are using Pension Obligation (P.O.) bonds. 3:12:49 PM Co-Chair Meyer stated that HB 311 would be HELD in Committee for further consideration.