HOUSE BILL NO. 57 "An Act making appropriations for the operating and loan program expenses of state government and for certain programs; capitalizing funds; amending appropriations; repealing appropriations; making supplemental appropriations and reappropriations, and 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." HOUSE BILL NO. 59 "An Act making appropriations for the operating and capital expenses of the state's integrated comprehensive mental health program; and providing for an effective date." 2:35:36 PM Co-Chair Seaton noted that all subcommittee actions were to Section 1, the numbers section of the budget. The reported subcommittee recommended budget amounts might be an incomplete picture of the department's budget. He relayed that after the committee completed the subcommittee amendment process including the language amendments that he would propose, a new committee substitute work draft of the bill along with the reports that would include both the numbers and the language appropriations providing a more complete picture of each agency's budget totals. The subcommittee reports were distributed to members the previous day and were posted on the Legislative Finance Division's website. Since he was the subcommittee chair for the Office of the Governor and the Department of Revenue he would begin with his reports. Co-Chair Seaton reported that the finance subcommittee for the Office of the Governor had no amendments to consider, nor did the governor. As the subcommittee chair he recommended no changes to the Office of the Governor's FY 18 budget. He read the budget totals by fund source: The budget totals: Fund Source: (dollars are in thousands) Unrestricted General Funds (UGF) $23,135.8 Designated General Funds (DGF) -0- Other Funds 838.3 Federal Funds 205.0 Total $24,179.1 The Unrestricted General Fund difference from FY15 Management Plan to the FYI 18 Governor budget is a reduction of $8.9 million, a decrease of 27.7 percent. From FY17 Management Plan, the FYI 18 Governor budget reflects an unrestricted general fund increase of $279.7, an increase of 1 .2 percent. 2:38:06 PM AT EASE 2:38:26 PM RECONVENED Co-Chair Foster asked Co-Chair Seaton to provide his next subcommittee report. Co-Chair Seaton recommended two budget amendments for consideration by the House Finance Committee and several recommendations to various policy committees for statutory changes. He read from the subcommittee report: The budget if theses amendments are adopted totals: Fund Source: (dollars are in thousands) Unrestricted General Funds (UGF) $25,646.4 Designated General Funds (DGF) $2,587.5 Other Funds $269,013.3 Federal Funds $78,665.5 Total $375,958.7 Positions: Permanent Full-time 812 Permanent Part-time 33 Temporary 16 Total 861 If these amendments are adopted, the Unrestricted General Fund difference from FY 15 Management Plan to the FY 18 House Subcommittee Recommended Budget is a reduction of $8.185 million, a decrease of 24.2 percent. The Unrestricted General Fund difference from FY 17 management plan to FY 18 House Subcommittee Recommended Budget is a reduction of $455.2 thousand, a decrease of 1.7%. 2:40:35 PM AT EASE 2:40:52 PM RECONVENED Co-Chair Seaton read the recommendations for DOR: The following statutory recommendations are also submitted to the House Finance Committee 1. A recommendation to the House State Affairs Committee: Amend AS 43.23.008 to consider repealing allowable absences for the Permanent Fund Dividend. In 2016, 26,524 dividends were paid to people with an allowable absence from the state. According to a study, many of those who claim allowable absences do not return to the state. 64% of students did not return, and 81% of those accompanying someone else with an allowable absence did not return to the state. 17% of all appeals through the Permanent Fund Division relate directly to allowable absence claims. Repealing allowable absences would increase the value of the Permanent Fund Dividend for those residents that remain in the state. 2. A recommendation for the House State Affairs Committee: Consider amending AS 43.23 to include directives or incentives to transition to a completely paperless environment for Permanent Fund Dividend Applications. Incentivizing paperless applications would reduce the current printing and postage costs of $120,705.57. It would also reduce the number of seasonal employees necessary to process paper applications, with a corresponding decrease in $239,000 in seasonal personal costs. 3. A recommendation for the House Fisheries Committee: Amend AS 43.75 to change the amount of fisheries taxes distributed to local communities and direct that revenue to fund direct management of fisheries. Currently 50% of fisheries taxes collected by the state are distributed to municipalities. 4. A recommendation for the House Fisheries Committee: Reconsider AS 43.75.015(b)-(d) and AS 43.77.010(1) to determine if the reduced tax rate for small fish processers and the reduced tax rate for developing fisheries are effective or if the reduced rates should be repealed or more narrowly defined. These three indirect expenditures currently cost the state an estimated $525,852 in foregone revenue. 5. A recommendation for the House Education Committee: Amend AS 43.20.014, AS 43.55.019, AS 43.56.018, and AS 43.77.045 to remove the 100% level of the education tax credit. Currently the first $100,000 of an eligible contribution receives a credit of 50%, the next $200,000 is credited at 100%, and contributions above $300,000 is credited at 50%. This credit can be taken across multiple tax types. Reducing the 100% level of the credit would reduce the more than $7.4 million in foregone revenue. 6. A recommendation for the House State Affairs Committee: Amend AS 43.52.255 to remove the deduction of local levies against the Commercial Passenger Vessel Tax. This deduction results in an estimated $13,559,5558 ($13.56 million) in forgone state revenue. 7. A recommendation for the House Transportation Committee: Amend AS 43.40.010(c) and AS 43.98.025(d) to repeal or amend the motor fuel tax timely filing discount and the tire fee timely filing credit, which result in forgone revenue of approximately $66 thousand each. Further, reconsider the commercial passenger vessel tax 72-hour voyage exemption under AS 43.52.295(4), which has likely modified cruise ship voyage plans in order to avoid the tax. 8. A recommendation for the House Labor and Commerce Committee: Amend or repeal AS 43.60.010(c), which reduces the beer and malt beverages tax from $1.07 a gallon to 35 beer sold in the state from a brewery who meets the U.S. definition of a small brewery. 35% of this reduced rate is claimed by out of state breweries. The estimated forgone revenue is $2.6 million. 9. A recommendation for the House Resources Committee: As 27.30.030, AS 43.20.044, and AS 43.62.010, relating to mining license tax exemptions, credits, and deductions, should be re-examined by an interim taskforce. Some of these deductions and credits were established pre-statehood and may no longer meet intent. Estimated known foregone revenue exceeds $6 million, with more foregone revenue that is not tracked. 10. A recommendation for the House Resources Committee: Sunset AS 43.20.053, the in- state refinery tax credit, on December 31, 2017. The current sunset date is December 31, 2019. If all three in-state refineries were to claim this credit each year it is available, changing the sunset by two years could result in savings of $60 million. However, because of the number of tax payers involved it is impossible for Revenue to report how much has been claimed under this credit. 11. A recommendation for the House Finance Committee: Amend or repeal various corporate income tax exemptions found under AS 43.19 and AS 43.20, several of which were adopted to conform with federal tax code but are no longer necessary or no longer meet intent. The fiscal impact of these exemptions is unknown at this time because the potential tax revenue is not reported. Other Information: The Subcommittee discussed a variety of issues during the meetings. Several members expressed interest in increasing state investment officers or improving investment officer recruitment and retention tools. More in-house investment officers could result in a decrease in external investment management tools. Ultimately no amendment was put forward during subcommittee; however, this remains a point of interest if the Department can demonstrate a plan to recruit and maintain these positions. The subcommittee also discussed a requested remodel of the Alaska Permanent Fund Corporation office building, which is also related to investment officer retention. This request was not offered as an amendment, as it was more properly viewed as a capital request. Governor's Amendments: The Governor did not submit any amendments for this agency. 2:48:38 PM Co-Chair Seaton MOVED to ADOPT Amendment H DOR 1 (copy on file): Taxation and Treasury Tax Division H DOR 1 - Add Corporate Income Tax Auditors Offered by Representative Seaton Increase the corporate income tax auditing staff to capture additional revenue that is currently foregone due to lack of staff resources. Currently the tax system is identifying audit leads that the division lacks the staff time to investigate. Estimated additional revenue of $500,000 per auditor. 1004 Gen Fund (UGF) 246.0 Representative Wilson OBJECTED for discussion purposes. Co-Chair Seaton read from a prepared statement (see above). Representative Wilson asked why the money would not be program receipts. She suggested that the money that could be found could be used to pay the amount. She wondered if the state would be pursuing people that owed more corporate tax than what they were paying now. She wondered how the state would be losing approximately $1 million on corporate income tax. Co-Chair Seaton relayed that the new accounting system identified leads. There were multiple leads but no auditors available to work on those leads. The revenues were foregone which the department anticipated. He noted that two other states had hired additional auditors for corporate income taxes. Those states recovered money and encountered increased compliance by corporations. The taxes came in as general funds and were not program receipts. The funds came in as general taxes from the auditing of the tax division. It was appropriate for the monies that came in to the unrestricted general fund to provide the monies for auditors. He had no problem looking at it a few years down the road to see about recovery efforts. The estimate was that the auditors would pay for themselves in the first year and bringing in $500,000 annually per each additional auditor. Co-Chair Foster let committee members know Mr. Spanos was available for questions. Representative Wilson indicated that even if the program receipts were not used currently the legislature would be adding two additional positions in anticipation that the state would receive more money. She thought it was great if the state received additional funds. She wanted to be able to find out whether the auditors were able to bring in the anticipated revenue after the first year. She wanted to follow the money similar to the Alaska Gasline Development Corporation (AGDC). She did not have a problem with the amendment if it was successful in bringing in the money. She would have a problem if she could not follow whether the state received what the state thought it would She asked if the committee could make its program receipts. Vice-Chair Gara relayed that in speaking with DOR. The department was very clear that they did not have enough auditors. They were also clear that if they had enough auditors they would be able to raise more money than the auditors would cost. The question concerning whether it would come in in the current year depended on whether the state caught someone who was underpaid whether they would take it to court and whether there was litigation. The state could not be guaranteed that someone was not going to stall on payments. He thought it had been clear from the department that the state was very short on auditors. If it had the auditors, the state would make more money than the cost of the auditors. 2:53:47 PM Co-Chair Foster also informed members that Mr. Dan DeBartolo, Director, Division of Administrative Services, Department of Revenue, was in the audience available for questions. Co-Chair Seaton mentioned the ease of requesting a report on general tax receipts recovered through corporate income tax. He thought it would be more difficult to set up a different account from UGF. He suggested it would be easy to find out whether the auditors that were hired brought in the anticipated receipts. DAN DEBARTOLO, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF REVENUE, spoke to the question. He had discussed, within the department, the issue following the subcommittee process. It was agreed that one thing the department should be doing right away was to create a more robust reporting mechanism so that it could report back in the following year during the subcommittee process what the auditors accomplished, and the amount collected in corporate income taxes. He anticipated having the discussion about the effectiveness not only in the first year but in years 2-5. To claim that the mechanism worked, he suggested it might be worthwhile to look beyond 5 years. He would defer further questions on the tax side to Mr. Spanos on line. 2:56:19 PM BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), clarified the question. Representative Wilson wondered, if the state were to hire the auditors, why they could not be program receipts. She understood that it would entail a code. It would make it easier to find out whether the two additional hires brought in enough to pay for their wages or more. The same idea could be applied in other places as well. Mr. Spanos stated that it would be very difficult to track the payments from audits of just two auditors. He suggested it might make more sense to put all the corporate receipts into a special fund. It was a policy call. It would be difficult to track payment receipts from audits done by specific auditors. While the department's system was robust, it did not record payments attached to audits done by individuals. The department could do it manually. The department would be tracking the new auditors' revenues manually and could report that information back to the legislature. He provided the caveat that the information could be provided assuming it was aggregated. If one auditor did one audit and a payment came in for that one audit it would be questionable that the specific number could be provided. He anticipated within one year several audits would be completed. Assessments could be provided in a total dollar figure. The department could also provide a report on payments, assuming they were paid. Representative Pruitt asked what the state was looking for. He wondered if the state was looking for people that did not pay their taxes or people that had errors in their calculations. Mr. Spanos responded the tax payers were sophisticated corporations that were doing their best to pay Alaska as little tax as possible. The corporations studied Alaska's statutes and interpret them in their best interest. Often when the division looked at the corporations it disagreed with the stance they were taking. Many of the audits were not what would be called "slam- dunk" audits. An audit was not an open and shut case, but a resource intensive audit. An auditor might have to be sent to a company's corporate headquarters to review large amounts of paperwork or to communicate frequently back and forth to get the needed level of substantiation to make a determination. Some of the issues involved a unitary filing for corporations. For example, a company doing business in Alaska might be a member of a much larger corporation. They might claim that they were not unitary with their parent - the business they do in Alaska should be looked at as a separate entity. It was hardly ever the case in the modern world. Giant corporations controlled their subsidiaries and, generally, the income from the parent company should be part of the tax pie. Alaska should be receiving a slice of the pie. If the income from the parent company was not in that pie, the pie was much smaller as well as the revenue Alaska received. There were several other tax issues that the department would consider assigning to the new auditors. Co-Chair Foster recognized Representative Lora Reinbold. 3:01:23 PM Representative Pruitt thought Mr. Spanos was indicating that the entities the state was pursuing were typically multinational or multistate entities rather than the small business corporations within the state. They were entities that created different limited liability corporations to create different tax shields. He asked if his assessment was fair. Mr. Spanos agreed. Representative Wilson MAINTAINED her OBJECTION. She thought the information should be tracked. A roll call vote was taken on the motion. IN FAVOR: Grenn, Guttenberg, Kawasaki, Ortiz, Pruitt, Thompson, Seaton, Foster. OPPOSED: Tilton, Wilson. Representative Gara was absent from the vote. The MOTION PASSED (8/2). There being NO further OBJECTION, Amendment H DOR 1 was ADOPTED. 3:03:54 PM AT EASE 3:04:36 PM RECONVENED Co-Chair Foster repeated that Amendment H DOR 1 passed on a vote of 8/2. Co-Chair Seaton relayed that he was in charge of the language sections of the operating budget bills. He had two other amendments to the Department of Revenue's budget that were linked together. Co-Chair Seaton MOVED to ADOPT Amendment H DOR 2 (copy on file): Child Support Services Child Support Services Division H DOR 2 - Move Cost Recovery for Paternity Testing from Language to Section 1 (Numbers) Offered by Representative Seaton This amendment adds the funding from the language section (formerly sec. 15 in HB 57, version J) to the numbers section and increases the amount of program receipt authority from an estimated $46.0 to $50.0. The language section is deleted in another amendment. H DOR 2 and H DOR 3 were being offered to clean up and reduce the language sections of the bill where possible and to put the information in the numbers section. Representative Wilson OBJECTED for discussion. Co-Chair Seaton read from a prepared statement (see above). He noted that the item was being moved from the language section (subcommittees could not address or act on this section) of the bill to the numbers section. Subcommittee members would be able to address and amend the numbers section once the information was moved over. Representative Wilson asked who was paying for the program. Co-Chair Seaton responded that the money was from the general fund and that currently the numbers were in the language section. Items in the language section could not be addressed or amended at the subcommittee level. The idea was to take items out of the language sections, where possible, and place them into the numbers section to be available for subcommittee action in the future. Representative Wilson understood the change Co-Chair Seaton was suggesting. She was unclear where the full $50,000 was coming from. Co-Chair Seaton deferred to Mr. DeBartolo. Mr. DeBartolo did not have the amendment in front of him. Paternity testing for Child Support Services was a budget item that was added in every year and adjusted back out at the end of the year. The source of the funds was a general fund match. He apologized for not having the documentation in front of him. Representative Wilson referred to page 1 of the backup. It appeared there was an increment of $50,000 and a decrement of $46,000 that was not used, leaving a balance of $4,000. She was trying to determine if the legislature was putting in $50,000 from program receipts. She indicated that typically when money came from program receipts someone was paying for it. She assumed, because the test was paternal in nature, it would be paid for by a man. She was trying to understand who would be paying for the increase of $4,000. She requested an "at ease." 3:10:01 PM AT EASE 3:11:31 PM RECONVENED Mr. DeBartolo addressed Representative Wilson's question. He explained that every year the Child Support Services Division had to estimate what would be paid for by the custodial fathers for paternity testing. Representative Wilson was correct that the parent paid for the testing rather than the state. Last year the division underestimated the collection amount by about $4,000 which was the reason for the change. Representative Wilson understood the language portion being moved. She wanted to clarify that money was not being added to the budget. Rather, it was money the state was recouping from users of the program. Mr. DeBartolo responded, "That is correct." Representative Wilson WITHDREW her OBJECTION. There being NO further OBJECTION, Amendment H DOR 2 was ADOPTED. Co-Chair Seaton MOVED to ADOPT Amendment H DOR 3 (copy on file): Child Support Services Child Support Services Division H DOR 3 - Move Cost Recovery for Paternity Testing from Language to Section 1 (Numbers) Offered by Representative Seaton See 30-GH1855J.7, Wallace, 1/31/17 This amendment deletes section 15 in HB 57, version J. The funding is added to the numbers section and increased to $50.0 in another amendment. Representative Wilson OBJECTED for discussion. Co-Chair Seaton explained that the amendment reflected the other half of the change to the language section. It removed an estimated amount in the language section to a specific dollar amount receipt authority in the numbers section. Representative Wilson asked Co-Chair Seaton to restate his position. Co-Chair Seaton repeated his explanation. Representative Wilson WITHDREW her OBJECTION. There being NO further OBJECTION, H DOR 3 was ADPOTED. Co-Chair Seaton MOVED to ADOPT Amendment H DOR 4 (copy on file): Alaska Mental Health Trust Authority Mental Health Trust Operations H DOR 4 - Restore Funding Level to Trust Requested Amount or FASD Campaign Offered by Representative Seaton This amendment in the amount of $150,000 is to fully fund and maintain the capacity of the Institute for Circumpolar Health Studies to continue to develop, implement and evaluate Fetal Alcohol Spectrum Disorder (FASD) prevention strategies and to continue the FASD media campaign, which has been instrumental in the dissemination of FASD prevention messaging. Each child diagnosed with FASD will cost the State of Alaska $850,000 to $4.2 million from age 0-18. Representative Wilson OBJECTED for discussion. Co-Chair Seaton read from a prepared statement (see above). 3:16:14 PM Representative Wilson assumed that the state already funded the program in the amount of $250,000. The amendment would add $150,000 to program funding. Co-Chair Seaton responded that the current funding level was $500,000. There was a decrement of $150,000 in the governor's budget relating to the media campaign which disseminated the message that no amount of alcohol was appropriate during pregnancy. The other portion of funding would be applied to pregnancy test kits. He reported 2000 responses to surveys by women. The funding would provide money for survey follow-ups regarding those women that stopped drinking upon finding out about their pregnancies. The purpose of the project was to lower FASD in Alaska. Representative Wilson argued that although the amount being requested was minimal, she opposed providing additional funding. She thought the tests were provided at bars to determine whether an individual was pregnant or eligible to drink. She was unclear where the survey data would come from. She did not feel it was the job of state government to provide the funding. She would be opposing the amendment. Representative Kawasaki agreed with some of the comments made by Representative Wilson. He reported that the program was being funded for the second year. Although the survey provided some results, it was difficult to tell from the sample whether the information that was gleaned was voluntary. He was trying to understand the efficacy of the specific program of putting pregnancy tests in bars. If the program was not working the state should cease paying for it. Conversely, if the program was working, he thought it deserved further discussion. If there were results, he wanted to hear about them. Co-Chair Seaton relayed that Mr. Jesse was available for questions. He reminded members that the amount would restore the media campaign to adults across the state. 3:19:41 PM JEFF JESSE, LEGISLATIVE LIAISON, ALASKA MENTAL HEALTH TRUST AUTHORITY, introduced himself. He responded to Representative Kawasaki that the surveys were voluntary. He explained that there was a que code on a poster with the pregnancy dispensers. He believed there was a small gift certificate that was provided to women who completed the survey. It was a remarkable return of the survey for the type of an analysis. He emphasized that the survey was completely voluntary. Representative Wilson noted that the $150,000 was designated general funds. She wondered if the amount could be utilized in another part of the budget for another program. She asked if she was accurate. Co-Chair Seaton answered that the amount was for alcohol and drug treatment prevention funds, 20 percent of which was to go towards alcohol and prevention programs. He thought FASD was an appropriate target for reducing the effects of alcohol on the Alaska population. The state had a high rate of FASD. He invited Mr. Jesse to talk about the distribution of funds. Mr. Jesse thought Representative Wilson was correct that the state did not have dedicated funds. The amount was a designated fund which meant the money could be used for any purpose. Representative Wilson suggested that the money could be used for more services in behavioral health to get more services to people with drinking problems. She pointed out that the money could be spent towards more services rather than a campaign. She thought the gift cards given to survey participants were likely another cost to the state. She thought the money should be utilized for a behavioral service having to do with alcohol or drug addiction. She wanted the committee members to understand that it was not money the state would be giving up, it was money that could go directly towards services. She did not need a response. She knew her statement to be true. Representative Wilson MAINTAINED her OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Guttenberg, Ortiz, Gara, Grenn, Foster, Seaton. OPPOSED: Kawasaki, Pruitt, Thompson, Tilton, Wilson. The MOTION PASSED (6/5). There being NO further OBJECTION, Amendment H DOR 4 was ADOPTED. 3:23:28 PM AT EASE 3:24:14 PM RECONVENED Co-Chair Seaton asked Representative Kawasaki to present the subcommittee report for DMVA. Representative Kawasaki read from his report: The Chair of the House Finance Budget Subcommittee for the Department of Military and Veterans' Affairs recommends that the House Finance Committee accept the Governor's FY18 Amended Budget with further amendments: The FY18 budget with recommended subcommittee amendment totals: Fund Source: (dollars are in thousands) Unrestricted General Funds (UGF) $16,349.4 Designated General Funds (DGF) 28.4 Other Funds 10,180.6 Federal Funds 30,995.1 Total $57,553.5 Representative Kawasaki indicated that there was an increase of roughly $100,700 from the FY 17 Management Plan with an unrestricted general fund (UGF) of $16,248.7 representing a .6 percent increase. He continued that the subcommittee met several times over the month and was forwarding two budget amendments which he would speak to shortly. Representative Kawasaki read the statutory recommendations by the finance subcommittee: The following statutory recommendations are submitted to the House Finance Committee: 1. Amend AS 26.27 to provide statutory authority to the Alaska Aerospace Corporation to issue dividends to the State of Alaska. This change is necessary because the corporation stated intentions to provide dividends to the State in the future, but does not currently have the statutory authority to do so. 2. Move Alaska Aerospace Corporation from Title 26, the Department of Military and Veterans' Affairs, to Title 14, the Department of Commerce, Community and Economic Development. This change is important because several public corporations are housed in DCCED, including Alaska Energy Authority, Alaska Railroad. Alaska Gasline Development Corporation and the Alaska Industrial Development & Export Authority, several of which have bonding authority, issue dividends, can purchase land and have tangible assets. AAC was originally housed in DCCED until 2011 when moved by Executive Order 115. Representative Kawasaki reviewed other information from his report: Other Information: 1. An amendment proposal was offered that would have reduced $388.0 UGF from personal services in the Office of the Commissioner, an approximate 20 percent reduction from post-vacancy amount. The sponsor offered the proposal as flexibility to reduce UGF spending in the Office of the Commissioner. Subcommittee Discussion: The Department said the $388.0 deletion would impact 46 PCNs that specialize in human resources, budget submissions, equipment procurement, internet technology and others that support 270 personnel across the state, including those who oversee the development and submission of its operating, capital and federal budget requests. 2. An amendment proposal was offered that would have reduced $273.0 UGF from services in the Office of the Commissioner, a 15 percent reduction of services from the Governor's FY18 Amended Budget. The sponsor offered the amendment to scale back on recent years increases. 3:27:38 PM Representative Kawasaki MOVED to ADOPT Amendment H MVA 1 (copy on file): Military and Veterans' Affairs Office of the Commissioner H MVA 1 - Eliminate Expansion of Alaska State Defense Force for Rural Engagement Offered by Representative Kawasaki Due to current budget deficit, the subcommittee does not wish to expand or create new programs at this time. 1004 Gen Fund (UGF) -210.9 Co-Chair Foster OBJECTED for discussion. Representative Kawasaki read the amendment (see above). He noted that while the committee agreed that the rural engagement component and the Alaska State Defense Force were very important, due to budget restraints the committee denied the increment. He furthered that the department came to the legislature in FY 17 for a $1.3 million UGF request and a $1 million capital request which were denied at the time for similar reasons. Co-Chair Foster WITHDREW his OBJECTION. There being NO further OBJECTION, Amendment H DMV 1 was ADOPTED. Representative Kawasaki MOVED to ADOPT Amendment H MVA 2 (copy on file): Alaska Military Youth Academy H MVA 2 - Report on Alaska Military Youth Academy UGF Structure Offered by Representative Kawasaki It is the intent of the Legislature that the Department of Military and Veteran's Affairs (DMVA) develops a report to the Co-Chairs of the Finance committees and Legislative Finance Division by December 1, 2017, identifying funding options available to the Alaska Military Youth Academy to generate revenue. The report shall include recommendations and limitations for tuition and fee structures based on income levels of applicants' households, and how to incorporate those recommendations into Fiscal Year 2019 budget for the Department. The report shall also include the impact of those recommendations on federal matching dollars and the UGF budget. Co-Chair Foster OBJECTED for discussion. Representative Kawasaki read the amendment (see above). He indicated that, according to the department, any dollar recuperated from tuition or voluntary contributions might reduce the federal pay-in to a ratio of 75 cents per dollar. 3:30:08 PM Representative Wilson commented that the Military Youth Academy had taken less money for BSA [Base Student Allocation] than any academy. The academy set a fee structure a few years prior. She was concerned with the intent language and whether it would apply to Mount Edgecombe or other public schools. She thought the academy had made great efforts. She noted the entity had accepted Alaska dropouts and helped them get back into school. She did not believe there would be very few parents of the academy that would be able to provide funding for their children. She suggested the intent language be adjusted. She also suggested some of the schools giving up their BSA. She wanted additional information prior to including intent language that could result in the loss of federal funding. She was concerned with entities being treated equitably. Co-Chair Seaton clarified that the DMVA budget was the only one before the committee presently. He also noted that during round two of the amendment process individual finance members could offer further intent or other amendments. Representative Pruitt mentioned the 75/25 ratio. He suggested that the state received $25 for every dollar the state brought in. He wondered if it would make sense to seek the funds from a few available people. His friends that attended the academy would not have had the means to pay for it on their own. He noted that in the narrative a non-profit was mentioned. He wondered if there was an opportunity to utilize monies from non-profits or money from outside state government to cover the 25 cents to avoid losing federal funding. Representative Thompson was concerned with the amendment. He reported that over the last 3 years the legislature had reduced the Youth Academy funding. The entity had laid off several people and was operating on a shoestring budget. He thought demanding an additional report that would require research was unreasonable because of the reduction in personnel. He thought the committee would be asking the academy to do more with less people. He opposed the amendment. Representative Kawasaki believed at the time the department had no objection to the amendment. Subcommittee members also had no objection. The committee did not want to deny someone the ability to attend or to create a chilling effect with a tuition. There were cases in which there were kids whose families could pay that had no avenue to capture the funds. He relayed that there was a 501(c)3 non-profit that was being lined up, but the paperwork was in process. The recommendation, if passed by the committee, would come before the body again in the following year at which time options would be presented. He reiterated that there were no objections in the subcommittee to the amendment proposal. 3:35:13 PM Co-Chair Seaton asked if it meant the 501(c)3 being set up to receive funds was providing a mechanism for receipt authority. He wondered if the state of Alaska would be able to accept donations from the 501(c)3 for augmentations to the program. Representative Kawasaki responded that it was envisioned that the 501(c)3 would allow offsetting of general funds. Research was still needed to determine whether the offsetting of funds would cause a problem with federal receipts - the reason the intent language was being offered. Co-Chair Seaton clarified that it was intent language to allow it. However, nothing had been done to-date. Representative Kawasaki responded affirmatively. Co-Chair Foster WITHDREW his OBJECTION. Representative Wilson OBJECTED. She commented that the military academy had done what she wished all schools did. They dwindled their budget and only charged the state what it needed. She wished all the districts would do the same. The academy had a very successful program and attained federal dollars. She thought it was terrible to tell the academy it needed to find additional funds somewhere else when they had been a model. She believed it would be sending the wrong message to a successful program. She invited members to imagine what would happen if the academy got caught up, causing anguish and a lack of desire to participate. The academy accepted mostly dropouts. She concluded that instead of rewarding the academy for its performance, the amendment sent the wrong message. She could not support it. Representative Kawasaki addressed one of the concerns that was mentioned. He thought the Alaska Military Youth Academy had done a great job. However, the academy was capacity driven and was up such that they needed to match every federal dollar available. If the state was able to contribute more into the GF function, it could potentially expand and grow with another unit. He pointed out that the problem was that the state was looking for nickels and dollars everywhere. If the state wanted a successful program within the Alaska Military Youth Academy to increase, utilizing a 501(c)3 or some sort of tuition system provided an avenue to do so. Representative Wilson MAINTAINED her OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Guttenberg, Kawasaki, Ortiz, Seaton, Foster OPPOSED: Pruitt, Thompson, Wilson, Grenn Vice-Chair Gara and Representative Tilton were absent from the vote. The MOTION PASSED (5/4). There being NO further OBJECTION, Amendment H MDV 2 was ADOPTED. Co-Chair Seaton asked Representative Kawasaki if there were any other amendments for DMVA. Representative Kawasaki responded in the negative. Representative Pruitt asked if the statutory recommendations would be discussed further. He asked if it was currently the time to discuss the recommendations. Co- Chair Seaton relayed that the statutory recommendations were developed by the subcommittees and forwarded to the policy committee by the subcommittees. House finance was not taking any action. Every member had the ability to forward statutory amendments on their own. The recommendations were for the policy committees to consider. The legislature was not voting on the statutory recommendations developed by the policy committee. Representative Pruitt wondered if it was an appropriate time to discuss the subcommittee recommendations prior to the bill moving out of the House Finance Committee. He restated his question about discussing the items prior to them moving out of committee. Co-Chair Seaton explained that one of the ideas of having the policy committees serve as the budget subcommittees was for the recommendations to be discussed within the subcommittee except for those from the Department of Revenue. He explained that DOR was considering tax items. In most cases, the subcommittees were policy committees reviewing proposed actions. It was not the finance committee telling the policy committee but rather the policy committee's functioning as budget subcommittees. The budget subcommittees were responsible for identifying statutory actions for consideration. The recommendations would come through the House Finance Committee in the form of a piece of legislation because they would most likely be related to finance. He anticipated that the statutory recommendations based on change in the budget would come to the committee. If recommendations did not evolve into bills they could be offered by any individual member of the subcommittee or anyone in the House. The committee would not get into a discussion about the subcommittee recommendations. They were subcommittee recommendations to the policy committees. 3:44:14 PM Representative Pruitt express confusion about the policy committee versus the subcommittee. He indicated that the subcommittees were chaired by House Finance members. He thought there would be some statutory recommendations that would come from the finance subcommittee that he might have concerns with. He felt there was confusion about why statutory recommendations would be generated from a finance subcommittee. He thought they should have been left with the policy committee and left out of the finance reports. Co-Chair Seaton added that he wanted the full committee to have the information about the findings of the subcommittees. However, changes could not be accomplished through the finance committee. They had to be accomplished through statutory change. Representative Wilson noted the Alaska Aero Space Corporation and wondered if it would take a statute change to move the division into commerce rather than to change it in the budget. Co-Chair Seaton responded affirmatively. Representative Wilson wanted clarification. She thanked Co- Chair Seaton. HB 57 was HEARD and HELD in committee for further consideration. HB 59 was HEARD and HELD in committee for further consideration. Co-Chair Seaton reviewed the agenda for the following day.