HOUSE BILL NO. 209 "An Act relating to public finance; creating the Department of Management and Budget; transferring the duties of the office of management and budget to the Department of Management and Budget; and providing for an effective date." 9:27:45 AM REPRESENTATIVE STEVE THOMPSON, SPONSOR, thanked the committee for hearing the bill and reviewed its purpose with a prepared statement: • House Bill 209 transfers the Office of Management and Budget to a freestanding budget agency. • Currently OMB is located within the Governor's office • As an agency within the executive branch, the commissioner of the Department of Management and Budget will be subject to legislative confirmation and their salary determined by the State Officer Compensation Commission. • This will also allow for additional legislative oversight during the budgetary process • There are 11 other states that require legislative confirmation for the state's chief budget official • 12 other states that have a freestanding budget agency • Since FY11 the annual salary of the Director has increased from $136.4 to $194.7 • Total UGF spend is from $192.5 to $277.2 with benefits Representative Thompson explained that the bill was lengthy because it had to hit so many agencies on the books. He detailed that the bill basically just changed the words Office of Management and Budget (OMB) to Department of Management and Budget. He shared that his staff was available for any questions. 9:29:51 AM Representative LeBon referenced Representative Thompson's mention of significant history and background information. He asked if the idea had been churning in the background for a while. Representative Thompson replied in the negative. He explained that the idea had arisen from the situation in the previous year. The bill originated from the idea that the legislature should have more oversight and knowledge of who was coming into the OMB [director] position. Representative Wool asked if there were hurdles or costs associated with establishing a new department aside from the salary considerations and confirmation [of a director]. CRYSTAL KOENEMAN, STAFF, REPRESENTATIVE STEVE THOMPSON, replied that there were about eight fiscal notes in committee members' bill packets (copy on file). She confirmed there were additional minimal costs associated with setting up an independent agency including shared services, procurement, and information technology. She would provide additional information when fiscal notes were reviewed. Representative Knopp was interested in the fiscal notes. He remarked that there were numerous notes that were all substantial. He hoped to hear an in depth review of each of the fiscal notes. Co-Chair Johnston shared her intention to hear a sectional analysis followed by a review of the fiscal notes. 9:32:37 AM Vice-Chair Ortiz asked if the costs would be ongoing or one time only. Ms. Koeneman replied that the hope was once things were underway the change would be budget neutral, meaning the current costs associated with OMB under the Office of the Governor would be those costs moving forward as a standalone agency. She noted that the legislature would have that power through the budgetary process. Representative Tilton asked whether the bill would result in any diminishment of the separation of powers between the executive and legislative branches. Ms. Koeneman answered that the bill did not change any of OMB's powers and duties. The statutes currently in place were contained in the legislation, the only difference was the change from the word "office" to "department" and from "director" to "commissioner." The services OMB currently provided would remain the same. 9:34:17 AM Co-Chair Johnston requested to hear the sectional analysis. Ms. Koeneman complied. Sections 1 through 30 included conforming language changing the Office of Management and Budget to the Department of Management and Budget. Additionally, the sections updated the words "office" to "department" and "director" to "commissioner." She read from the sectional (copy on file): Section 31: AS 44.17.005. Offices and departments Adding the "Department of Management and Budget" to the list of principal offices and departments. Section 32: Proposed new Chapter AS 44.22.010. Chapter 22. Department of Management and Budget (p. 33) Sec. 44.22.010. Commissioner of management and budget Establishes the principal executive officer of the Department of Management and Budget is the commissioner of management and budget. Sec. 44.22.020. Powers and duties of the commissioner. Outlines the duties of the commissioner of management and budget. (Identical language to current powers and duties of the director under AS 44.19.144) Ms. Koeneman noted that Section 44.22.020 was included in the sections being repealed at the end of the bill. She remarked the language was conforming. She continued to review the sectional analysis: Sec. 44.22.030. Powers and duties of the department. Outlines the duties of the department of management and budget. (Identical language to current powers and duties of the department under AS 44.19.145) Sec. 44.22.040. Internal audit records. Requires the department to keep a complete file of audit reports. (Identical language to current internal audit records under AS 44.19.147) Sec. 44.22.050. Definitions. Provides a definition for the commissioner and department of management and budget. Section 33-35: Conforming language changing the office of management and budget to the Department of Management and Budget; and updating "office" to "department". Section 36: Repeals statutes related to the "office" of management and budget. Section 37: Transitional language that allows for the transfer of information and documents from the "office to the "department". Ms. Koeneman explained that if there were any current suits against OMB, they would continue until they were worked out through the transition. She concluded the sectional analysis: Section 38: Provides a July 1, 2020 effective date. 9:37:16 AM Representative Merrick asked if OMB had taken a position on the legislation. Ms. Koeneman replied that she did not believe so. Representative Knopp looked at Section 32 and asked if it was the intent that the commissioner would also be the OMB director. Alternatively, he wondered if there would be a commissioner and director. Ms. Koeneman answered that the intention was the positions currently with OMB - the director and staff currently listed in OMB's personal service expenditure - would be the staff for the office. She remarked that the fiscal notes had additional positions listed, but the bill sponsor's intention was to transfer the office as it currently stood to a standalone department. She relayed it had been her hope to only modify the language in statute; however, with the constitution, it had not been so easy. Representative Wool asked if the sponsor foresaw there being a deputy commissioner. He pointed out that typically there was at least one deputy commissioner position alongside a commissioner position. He asked if the parallel position existed, such as assistant director. He wondered if there would be a straight transfer over. Ms. Koeneman responded not necessarily. She detailed that in name the position would probably be a deputy commissioner but depending on how a governor set up their OMB there was sometimes a deputy director. She clarified it was the sponsor's intention that the comparable level position would be the deputy. 9:39:49 AM Co-Chair Johnston asked to hear a review of the fiscal notes. SYLVAN ROBB, POLICY ANALYST, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, began by noting that the State of Alaska had not created a new department from whole cloth since prior to 1975. She noted that OMB had run out of time to continue the historical research. She reviewed the eight fiscal notes. There were not OMB component numbers to use as reference because the component numbers did not exist. She detailed that the proposed new Department of Management and Budget would be comprised of four appropriations with seven allocations. The first fiscal note [Identifier HB209-GOV-DIA-03-01-20] created a division of internal audit. She noted the item had been defunded for many years; however, because it was contained in the statute of the bill, OMB had operated under the assumption there would be interest in restarting the function. She shared that the last time a position had been filled was in 2012 when there had been one position. She relayed that the position had been taken off the books a number of years ago as part of a cleanup as it had been unfilled for many years. 9:42:03 AM Vice-Chair Ortiz wanted to ensure he was looking at the right fiscal note. He asked Ms. Robb to provide the identifier at the top [left] of the fiscal note. Ms. Robb replied that the identifier was HB209-GOV-DIA-03- 02-20. Representative Knopp believed Ms. Curtis and Ms. Robb had both stated that the internal audit program had been discontinued. He asked for verification that Ms. Robb had stated that OMB had included the program in the fiscal notes because it was specified in statute and OMB assumed the legislature wanted to go back to the program. Ms. Robb replied that the statute was contained in HB 209 and it was the assumption that the bill sponsor intended the functions to resume. Representative Knopp asked for verification there were currently no other internal auditors in any of the state departments. Ms. Robb answered that within the Department of Administration the Division of Finance performed single audit work. She added that OMB no longer performed audit work. 9:43:38 AM Representative LeBon asked if any bargaining units touched OMB staffing wise. Alternatively, he asked if OMB was completely outside the bargaining unit influence. Ms. Robb answered that under the current structure where OMB was under the governor's office, all staff positions were fully exempt. If the office was changed to a department some of the positions may change to classified. 9:44:27 AM Ms. Robb moved to the next fiscal note, Identifier HB209- GOV-DBA-03-02-20. She noted the note pertained to the Department of Management and Budget, budget analysis. She detailed that the division represented the majority of OMB as it currently existed. The note included current budget analysts, a chief budget analyst, and the addition of an assistant (a position OMB had until recently). 9:45:12 AM Ms. Robb looked at the third fiscal note for Administrative Services, Identifier GOV-DAS-03-02-20. Currently OMB was part of the governor's office and the administrative services covered by the fiscal note were services provided to OMB as part of the governor's office. For example, OMB was able to take advantage of governor's office procurement staff, human resources staff, and the finance officer and administrative services directors. She explained that if OMB was turned into a department, the positions would need to be created in order to provide the services to the department. Representative Wool asked for verification the note included all new positions. Ms. Robb agreed. She explained that currently OMB received the services from the governor's office. Vice-Chair Ortiz asked for a breakdown of the types of services she was referring to. He asked for further detail on the five positions. Ms. Robb answered that the positions would provide services currently received from the governor's office. She elaborated that the positions included an administrative services director (as in other departments), a finance officer (it was always necessary to have two people in the financial positions because people cannot certify each other's work), a budget manager, a procurement specialist, and a human resources consultant. She noted OMB's anticipation that in the outyears one of the positions would no longer be needed as the current consolidation efforts for procurement and human resources came to fruition. 9:47:45 AM Co-Chair Johnston asked members to hold their questions until the end of the fiscal note review. She reminded members that floor session began at 10:00 a.m. Ms. Robb continued with the fourth fiscal note, Identifier HB209-GOV-CO for administrative services and the commissioner's office. She explained that the creation of a new department would require a commissioner's office. She detailed that three of the staff shown on the fiscal note were existing staff. She referenced an earlier question and relayed that there was a deputy director at OMB and it was the assumption that person would become the deputy commissioner for the new department. She detailed that current Director Neil Steininger had an assistant who would continue and there would be a special assistant to act as the legislative liaison and perform duties normally filled by that role. Ms. Robb moved to the fifth fiscal note, Identifier HB209- GOV-PP for policy and planning. The note included three existing OMB policy positions that would continue under the new department. 9:49:19 AM Ms. Robb reviewed the sixth fiscal note, Identifier HB209- GOV-SDC for policy and planning, statewide data clearinghouse. The note reflected the current OMB programmer who maintained the Alaska Budget System where all budgeting for the state occurred. The note also included the addition of a research analyst in anticipation of the internal audit and the collection of additional data (in order to make the best use of the data). 9:50:09 AM Ms. Robb turned to the seventh fiscal note, Identifier HB209-GOV-ASD for policy and planning and centralized administrative services directors. The note did not reflect a change. She highlighted that the administrative services directors had been moved into OMB by Executive Order 307 [in 2019 under the Dunleavy administration]. The fiscal note reflected the administrative services directors would continue to be a part of the new department. Ms. Robb turned to the eighth fiscal note, OMB Component Number 1244. The note represented the removal of funding for OMB. Co-Chair Johnston OPENED and CLOSED public testimony. 9:51:45 AM Representative Wool referenced the salaries of the commissioner determined by the salary compensation commission. He noted the policy planner position was listed as a salary range 27 at $229,000. He asked for verification the salary was considerably more than the commissioner's salary. He asked if the numbers were standard. Ms. Koeneman replied that it was not uncommon in other departments to have the commissioner's topped out at $135,000 set by the Salary Compensation Commission and to have a director level position at a range 27 with additional pay steps to outrank the commissioner in terms of pay. Representative Knopp asked for verification that Ms. Robb had reported that a new state department had not been created since 1974. Ms. Robb replied that OMB had struggled to locate the last time a department had been created. They had researched back to 1975 before running out of time. Representative Knopp thought it was an interesting conversation. He believed it clearly showed how the state managed and staffed its departments. He thought it was a great review and opportunity to talk about the internal audits that were not done and the research analysis for internal auditors. He opined it was a good conversation to consider how business was being conducted in the state's departments. HB 209 was HEARD and HELD in committee for further consideration. Co-Chair Johnston reviewed the schedule for the afternoon.