HOUSE BILL NO. 69 "An Act making appropriations for the operating and loan program expenses of state government and for certain programs; capitalizing funds; amending appropriations; making reappropriations; making supplemental appropriations; 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. 71 "An Act making appropriations for the operating and capital expenses of the state's integrated comprehensive mental health program; making supplemental appropriations; and providing for an effective date." 9:13:15 AM Co-Chair Foster relayed that the committee would hear the latest changes on the operating budget. He referenced a request from the previous day to take more time reviewing proposed changes in the committee substitute (CS) [adopted on May 23, 2021]. He discussed that the first CS the committee had considered was the governor's budget that had been rolled out on March 9. He shared that the meeting would focus on the operating budget. He indicated the goal was adjournment on May 19 and he was hoping to get the budget over to the Senate. The meeting would focus on the high points of the changes from the governor's budget to the current CS. Co-Chair Foster detailed that the CS rolled in supplemental and capital items from the governor's operating and capital budgets. He planned to speak about the CS and have committee discussion on the details of traditional budget items. Additionally, he would have his staff to speak about supplemental and supplemental capital additions included for FY 21. He planned to address how the American Rescue Plan Act (ARPA) funds had been included. He referred members to a table titled "FY22 House Committee Substitute (CS1) Summary" (copy on file). 9:17:10 AM Co-Chair Foster explained the first part of the document included traditional operating budget items and the last part of the document focused on ARPA funding. He detailed that the operating budget summary was broken down by department and included the major changes in the CS compared to the governor's budget. Co-Chair Foster began with the Department of Administration (DOA) and highlighted that the House Finance subcommittee had accepted the governor's proposal to consolidate human resources procurement. The CS added $3.3 million in undesignated general funds (UGF) for public broadcasting. He moved to the Department of Commerce, Community and Economic Development (DCCED) budget where the subcommittee had accepted the governor's proposal to move a couple of economic development positions from DCCED to the Office of the Governor. The CS included $450,000 for Alaska Legal Services. He detailed that Alaska Legal Services typically received funding from two sources. He explained that the agency received some funding through the language section via court fees. He highlighted an addition of $450,000 in the numbers section. He believed the $450,000 had been included because it had been vetoed by the governor in the past. He asked his staff if his recollection was accurate. BRODIE ANDERSON, STAFF, REPRESENTATIVE NEAL FOSTER, replied that Alaska Legal Services funding had been maintained at that level for a few years. He elaborated that the governor had attempted to veto the funding several years back; however, the funds had been replaced by HB 2001 at the time. He explained that the governor had not vetoed the funding since that time, but he continually attempted to remove it from the numbers section of the operating budget each year. Co-Chair Foster stated that the governor had not included the funding for Alaska Legal Services in the budget, but the CS added the amount to maintain flat funding from the prior year. Additionally, the CS included $370,000 UGF for the Kuskokwim Ice Road grant. He detailed the item was new and was a grant to named recipients for the maintenance of an ice road from Bethel connecting 10 to 15 communities. 9:20:24 AM Co-Chair Foster highlighted changes under the Department of Corrections (DOC). The CS denied $4.3 million UGF to replace restorative justice lost funds. Additionally, the CS denied structure change proposal relating to putting electronic monitoring and community residential centers (CRC) into population management. He detailed that the bill included intent language for DOC to renegotiate contracts with CRCs to flat rate contracts. Co-Chair Foster moved to the Department of Education and Early Development (DEED). He reported that the House had early funded and forward funded education, which was included in separate legislation. He believed there may be a misconception that the legislature was double funding education in the current year and future years by potentially increasing the budget. He clarified the early funding for education funded the FY 22 budget and the forward funding component funded education one year in advance and used FY 23 revenue. He elucidated that the action did not increase the budget, it just pertained to the timing of the budget. The CS added $5 million for Pre- K. He noted that Pre-K had been funded in the past, but the governor's budget did not include an increment. He highlighted that the CS funded $640,000 for the Statewide Library Electronic Doorway (SLED) program and Alaska Library Catalog using DGF funds. He asked Mr. Anderson about the DGF fund source. 9:22:31 AM Mr. Anderson replied that the DGF fund source was the Higher Education Fund. Co-Chair Foster continued to review changes to the DEED budget. The CS denied the governor's proposed deletion of a State System of Support position. The CS retained the $109,000 using DGF. 9:23:10 AM Co-Chair Foster moved to the Department of Environmental Conservation (DEC). The subcommittee would continue to use the Commercial Passenger Vessel (CPV) fund to pay for shellfish testing. He reported that no significant changes had been made to the Department of Fish and Game budget. Co-Chair Foster advanced to the budget for the Office of the Governor. The CS accepted the transfer of economic development positions from DCCED to the Office of the Governor. Additionally, the CS accepted the governor's request for $690,000 UGF for the Division of Elections for ranked choice voting. He noted ranked choice voting had passed by ballot initiative and the increment would go towards notifying the public. The CS included intent language that the Office of Management and Budget (OMB) review single audit costs (for amounts billed to the federal government) and reimbursements. Co-Chair Foster moved to the Department of Health and Social Services (DHSS) and addressed the addition of $3.4 million UGF related to a tribal compact. He asked Mr. Anderson for verification the funds were for child welfare. Mr. Anderson replied in the affirmative. He elaborated the tribal compact was between tribal organizations and the Office of Children's Services. The $3.4 million DGF increment helped take care of Native adoptions. He explained the increment was a one-time allocation to provide the level of funding typically expended in a single year and encourage the development of a partnership for other fund sources going forward. Co-Chair Foster asked if the DGF fund source was restorative justice funds. Mr. Anderson replied that the fund source was recidivism funds. Co-Chair Foster continued to discuss the changes made to the DHSS budget. The CS used $16 million in mental health funds instead of the governor's proposal to use Alaska Mental Health Trust Authority (AMHTA) reserves. Additionally, the administration proposed using $35 million in lapsing Medicaid carryforward, which had been denied by the subcommittee. The CS would reappropriate lapsing funds to the language section for school bond debt reimbursement [and Regional Educational Attendance Area (REAA)]. 9:26:36 AM Co-Chair Foster moved to Judiciary and stated that the CS accepted the governor's $480,000 increment for therapeutic courts. There were no significant recommendations for the Department of Labor and Workforce Development. Under the Department of Law, the budget eliminated $267,000 UGF for the chief of staff position. Additionally, in FY 21, the governor had vetoed a new $20,000 line item for Janus v ASCME. The CS reinstated the structure and $20,000 in FY 22. He reported that $1 million UGF was added for the Division of Legislative Audit. He highlighted interagency charging for time and work related to audits. He detailed that the funds were not always paid back to the Division of Legislative Audit. The increment would go directly to legislative audit for compensation instead of sending the money through a department first. He believed there had always been a question about who owes what and the goal was to cut out the middle person. He asked his staff to elaborate. Mr. Anderson confirmed the statements. The $1 million was a one-time increment while OMB and the Division of Legislative Audit worked out the details for billing through the RSA [reimbursable services agreement] or interagency receipts. He highlighted intent language in the Office of the Governor for OMB to work with some cooperation. He stated that while the entities figured out the rates for different things, it would also be a time to determine how Legislative Audit would be able to bill departments for work, primarily the Comprehensive Annual Financial Report (CAFR), which was constitutionally required. He explained that Legislative Audit audited each department; therefore, some sort of cooperation for providing funds to the division was necessary. Until the parties determined how to get the rate established, the $1 million increment would enable the production of what was formerly known as the CAFR to be produced for the coming year. 9:29:44 AM Co-Chair Foster moved to the Department of Military and Veterans Affairs. The department identified various savings (i.e., eliminated vacant positions) all of which the subcommittee accepted. He advanced to the Department of Natural Resources. The subcommittee had recommended filling six Alaska Conservation Corps positions, but only if enough fees were collected and no UGF funds were required. Co-Chair Foster briefly moved to the Department of Public Safety. The subcommittee had denied a $1.4 million UGF capital outlay request for troopers in addition to $1.4 million UGF for the full funding of vacant trooper positions. He highlighted the Department of Revenue (DOR) and relayed that $210,000 DGF was added for two tax auditors. He explained that the cost of the two positions would be outweighed by the potential revenue. He asked Mr. Anderson to elaborate on the associated DGF fund source. Mr. Anderson believed the document contained an error. He corrected that under the Department of Revenue the tax auditor positions at a cost of $210,000 should be UGF not DGF. He elaborated the first attempt had been to pay for the positions with DGF program receipt authority pushed to DOR to help offset the cost of the two new positions; however, the effort had not been successful. Co-Chair Foster continued discussing DOR. He highlighted the incentive compensation for the Alaska Permanent Fund Corporation (APFC). He moved to Department of Transportation and Public Facilities (DOT) and referenced the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) funding of slightly over $50 million. He detailed that the funds in addition to language from the language section of the bill would go towards providing for 18 months of forward funding for the Alaska Marine Highway System (AMHS). He would elaborate on the funding later in the meeting. Co-Chair Foster turned to the University budget. The subcommittee accepted the governor's $20 million decrement, which was the third year of the three-year compact between the administration and the University Board of Regents. Additionally, the subcommittee added $15.7 million for lost revenue relief at a net decrease to the University budget of $4.3 million. Co-Chair Foster moved to the language section of the CS. He detailed that the Permanent Fund Dividend (PFD) would be addressed in a separate bill that should be heard on the coming Thursday or thorough the budget amendment process. He discussed that the governor had originally put out a supplemental to pay the balance of the 2020 PFD in addition to a separate bill that would pay a full PFD in the current year. He shared that "we have been looking at rolling out our own version" of a PFD. He added that the issue may come up in the form of an amendment from any committee member regardless of the introduction of a separate bill. 9:34:43 AM Co-Chair Foster continued to review changes in the language section of the bill. He moved to 18-month forward funding of AMHS via CRRSA FTA [Federal Transit Administration] and FHWA [Federal Highway Administration] funds. He asked for verification the amount was around $110 million. Mr. Anderson answered that the total funding for the 18- month forward funding of AMHS was $193 million, including $53 million UGF. Representative LeBon asked about oil tax credits. He stated his understanding that the original $60 million to pay oil tax credits with Alaska Industrial Development and Export Authority (AIDEA) reserves had been amended to $114 million. He asked if the funds were all UGF or if the funding source was split. Co-Chair Foster answered that the governor's original budget allocated $60 million in AIDEA reserves to pay for oil tax credits, which had been the full statutory amount based on oil prices at the time. The governor had later submitted an amendment to change the fund source to UGF and increase it to the current statutory amount of $114 million. Co-Chair Foster continued addressing the language section of the budget. He highlighted an increment of $950,000 to cover the costs to elections for implementing the new redistricting plan and a separate increment of $1 million for the redistricting board. He shared that had chaired the Legislature subcommittee and the $1 million had been added at the request of the redistricting board. He elaborated that the legislature had appropriated $2.5 million for the redistricting board in FY 21/FY 22. The board had since come back to the legislature requesting the additional $1 million, bringing the amount to $3.5 million. He explained the board was anticipating legal challenges, as was the case 10 years back. He believed the board's budget had been $7 million at the time. Mr. Anderson confirmed that the board's budget [10 years back] had started off at $7 million and ended at $10 million. Co-Chair Foster asked Mr. Anderson to touch on the $950,000 increment to cover the cost of implementing the new redistricting plan. Mr. Anderson replied that the $950,000 increment would go to the Division of Elections for implementing the redistricting plan after the board had rolled out its plans. He elaborated it would be up to the division to produce the new maps and distribute new voting cards to citizens. The $950,000 was to cover new costs required due to some of the problems related to implementation. Co-Chair Foster asked for verification it was part of the governor's proposal. Mr. Anderson agreed. 9:38:56 AM Co-Chair Foster addressed school bond debt, which was fully funded at $83.5 million. The funds were made up of $30.8 million from the School Trust Fund and $52.7 million from Medicaid lapsing funds. He noted that the governor had proposed carrying forward Medicaid lapsing funds within DHSS, but the CS would reappropriate the lapsing funds for school bond debt. He reported that the REAA Fund was fully capitalized at $34.2 million with Medicaid lapsing funds. He explained that school bond debt and REAA were typically tied together, meaning if one was fully funded the other typically received full funding as well. He noted that the CS contained backstop language specifying the increments would be funded with UGF in the event lapsing funds were not available. Co-Chair Foster highlighted the large difference in community assistance funds between the governor's proposal and the CS. He detailed that community assistance was fully capitalized at $90 million. He explained that the legislature had added $21.3 million in FY 21 and $17 million in FY 22 to bring the fund back to its fully capitalized level of $90 million. He added that the fund had to be replenished annually. 9:41:46 AM Co-Chair Foster addressed ARPA funding. The legislature anticipated the state would receive about $1.9 billion in federal funding. He explained that a significant portion was restricted for specific purposes. He highlighted the spending flexibility related to $1 billion of the funds commonly referred to as the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF). He noted that in some ways the allocation approach in the CS was similar to the governor's and in some ways it diverged. One of the large differences was in the amount spread out over the years. He explained that the governor had appropriated the full $1.1 billion under HB 181 using a multiyear appropriation from FY 21 through FY 24. The CS would spend 70 percent in FY 21 and FY 22 and 30 percent in FY 23. The strategy centered around the belief that most of the impacts to the cruise ship industry and other related areas had occurred in 2020 and in the coming summer. He expected the hit to be less in the following year; therefore, more of the funds had been weighted towards the present than later on. Co-Chair Foster looked at the last page of the document and noted that $30 million had been allocated to nonprofits compared to a $50 million allocation the previous year. He pointed out that things had been done differently under the Coronavirus Aid, Relief, and Economic Security (CARES) Act when compared to ARPA. The $30 million increment for nonprofits reflected flexible money. He explained that when accounting for the non-flexible funding that automatically went to nonprofits, the number could be larger than $30 million. Additionally, he reminded members the CS did not appropriate the full $1 billion like the governor had proposed; the CS would appropriate 70 percent of the total for the current budget cycle. He explained that between the two sources nonprofits may receive between $60 million or $70 million. Co-Chair Foster addressed public testimony the committee had received about the unexpected loss of Victim of Crimes Act (VOCA) federal funds. The CS included $6 million to backfill lost federal funds in addition to any reductions seen on the state side. He asked Mr. Anderson to expound on the topic. Mr. Anderson elaborated that the committee had heard about a $6 million reduction in federal VOCA funding during public testimony. The CS included funding to restore the reduction. He stated there had been some confusion about the reduction during public testimony. He clarified there had been some incremental reductions to domestic violence shelters at the state level beginning in FY 18. The CS restored the federal loss but did not address increasing the Council on Domestic Violence and Sexual Assault (CDVSA) funding levels back to FY 18 or FY 19. He stated that while the CS restored the federal loss, the funding remained lower than in previous years. 9:47:52 AM Co-Chair Merrick had been under the impression the loss of the federal funds had been $1.3 million and the $6 million included previous state cuts. Mr. Anderson clarified that the $6 million covered the federal loss for the next three years. Representative Rasmussen asked if there had been any conversation with advocates in the VOCA sector about a one- time $6 million payment. Alternatively, she asked if the funds would be broken up over three fiscal years. Mr. Anderson answered that the CS included $6 million over three years. He explained there would have to be an amendment or adjustment to the CS to inject all $6 million in one year. Representative LeBon asked about $80 million in grants to local governments for community relief [listed on the last page of the document under ARPA funds]. He interpreted the language to mean the funds were targeted to organized cities, municipalities, and boroughs. He asked if the distribution formula was population driven. 9:50:03 AM Co-Chair Foster recalled that the Alaska Municipal League (AML) had testified to the House Finance Committee that it anticipated receiving about $185 million in ARPA funds. Mr. Anderson agreed. Co-Chair Foster explained that even after receiving the federal funds, AML had been expecting to come up short by about $133 million. He stated the idea was to get as close as possible in terms of providing some community relief. The ARPA community relief funds added up to almost $125 million. He used the cruise ship head tax as an example and stated that the amount of the shortfalls was clear. The community relief funds included $42 million for FY 21 and FY 22 to address the cruise ship head tax losses. Additionally, the funds included $2 million for fish landing tax shared between state and local communities. The $80 million was a broad amount to get close to the $133 million shortfall. He noted that the federal guidelines were anticipated to come out on May 11. He relayed that in conversations with the Senate there had been a decision to move the budget process along instead of waiting for the federal guidance. There was an understanding that some of the numbers in the CS were broad and once guidelines came out, the House would work with the Senate to refine the numbers. 9:52:40 AM Representative LeBon understood there was still limited information. He wanted to ensure there was transparency in the process and fairness for all communities. Co-Chair Foster referenced Representative LeBon's question about whether the community relief distribution formula was population based. He asked if Mr. Anderson had a comment. Mr. Anderson followed up on Representative LeBon's questions. He informed the committee that the $80 million in grants to local governments included an FY 21 capital supplemental item to account for the current absence of clarity on all of the incoming funding. He explained that by including the item as a capital supplemental item, the legislature would have the ability to go back with better clarification on the program DCCED would be required to use for the grant distribution process. He explained that before a community applied for grants from the $80 million, a community's shared taxes and other ARPA or state funding would be factored into a community's eligibility percentage. He explained that communities that may have been hit harder per capita would be able to get a piece of the pie comparable to some of the "leviathan" lost revenue sections. 9:54:46 AM Representative LeBon stated his understanding that lost revenue was a primary factor for determining who received the grant funding. He asked if his community would be disadvantaged in the formula if it did not have tourism, loss of cruise ship revenue, and other associated items. Mr. Anderson responded that the issue would have to be addressed when there was more communication between OMB, the Senate, and the department to ensure the distribution was equitable to all communities. Representative LeBon remarked that some communities relied heavily on property taxes. He noted that rates had remained static, and the collection of property taxes had not materially changed over the past year or two. He stated that if a community did not have a sales tax or other revenue process, they relied on property taxes. He commented there was a mechanism to treat communities with equality or equity if they did not have a sales tax program. Vice-Chair Ortiz addressed the federal community relief funding. He stated that the $80 million in grants to local governments to offset lost revenue was intended to bring relief to communities that had lost significant sales tax revenue due to a loss of the tourism season. He highlighted that in prior federal relief packages, resources had not been available for lost revenue. He stated his understanding that it was possible to use some ARPA resources to backfill lost revenue including lost sales taxes. He thought the intent was to assist communities hit hard by sales tax revenue losses in relationship to COVID and loss of tourism. 9:57:31 AM Representative Wool stated his understanding that the $80 million could be used to fill gaps left due to various shortfalls in other funding formulas. He knew there had been various formulas from the federal government and the state had distributed funding through an RPL [Revised Program Legislative] process, which used a formula based on lost revenue instead of per capita. He knew there had been some discussion that some communities without a sales tax (e.g., Fairbanks) did not fair as well even though they may have been impacted. He stated the other ARPA funds for communities were strictly per capita; therefore, Fairbanks, Anchorage, and some large communities faired alright. He furthered that communities like the Denali Borough with a low population did not have fish landing tax or cruise ship head tax and fell in a hole of not receiving sufficient funding; however, those communities faired alright under the distribution of CARES funding. Representative Wool wondered if the ARPA grant program would consider all of the funding previously received by communities to determine where it could assist. He thought the funds should be able to fill gaps. He remarked that none of the funding mechanisms that had come around were perfect - some helped based on population, some helped based on lost cruise ship tax, and some helped based on lost sales tax and other. He hoped the $80 million could be used in a more customized way to help communities for a particular need based on past funding they had received. Mr. Anderson stated it was the hope and it would take cooperation between both legislative bodies, OMB, and the department to work out the specifics related to equity. Co-Chair Foster shared his intent and hope to avoid using the one-time $1 billion in ARPA funds to create new programs that would result in recurring future obligations. He looked at UGF replacement funding of $410 million at the bottom of page 4 of the document. He detailed that $235 million of the total had been set aside for FY 21 capital items and $83 million had been used to offset FY 22 operating expenditures. Mr. Anderson added that he would address the UGF swaps for the $235 million in the operating supplemental section. Co-Chair Foster continued speaking about UGF replacement funds on the last page of the document. He highlighted a $91.5 million swap with UGF debt service funds for FY 22. The funds could be used to offset money being paid to service debt for correctional facilities including the Goose Creek Correctional Center and a facility in Anchorage. He briefly addressed community relief funds of $124.5 million. The total included $42 million for lost cruise ship head tax in FY 21 and FY 22. Co-Chair Foster discussed tourism relief funding totaling $30 million. He detailed that a portion [$20 million] would go to ARDORs (economic development entities throughout the state). The remaining $10 million would go to the Alaska Travel Industry Association (ATIA). Co-Chair Foster highlighted that $30 million in ARPA funds would go to small businesses in the form of grants to offset lost revenue. Additionally, $30 million would go to nonprofits in the form of grants to offset lost revenue. There was $310 million allocated for capital including $75 million in ARPA funds and another $235 million already accounted for as UGF offset. He relayed the governor's proposal had included $325 million. He noted the difference between the two totals was not an apples-to-apples comparison because the CS allocated 70 percent to the current budget. He highlighted that the full 100 percent would be a higher number. Additionally, it was necessary to add in the funding from the inflexible part of the federal funds. 10:05:03 AM Co-Chair Foster summarized the expectation of receiving about $1.9 billion in ARPA funding, of which about $1 billion had flexible spending. He asked Mr. Anderson for verification that $112 million for broadband was not included in the $310 million for capital projects. Mr. Anderson agreed. He elaborated that [the U.S] Treasury had indicated that $112 million set aside in the Congressional bill for infrastructure related to remote education, work, and other. He detailed that Treasury had ruled the $112 million was specifically for broadband expansion. He explained the capital budget would need to reflect $112 million for broadband only. Co-Chair Foster explained that while the document showed $310 million set aside for capital, the actual amount was higher because the $310 million only reflected the flexible portion or 78 percent of the $1 billion. Representative LeBon highlighted the slippery slope of using the words "lost revenue." He stated that communities had suffered economic setbacks from the COVID crisis including employment losses and the closure of businesses. He referenced many communities relying on property taxes as a primary revenue source and explained there would be some property tax defaults and inability for individuals and businesses to pay their property taxes. He thought it should all be part of the lost revenue debate. Representative Josephson stated his understanding that in order to use the $1 billion in CSLFRF funding, it was necessary to show a shared tax or state tax implication. He thought the property taxes referenced by Representative LeBon sounded like a local lost tax rather than a shared or state tax loss. He asked if he was accurate that it was one of the difficulties in Representative LeBon's suggestion. Mr. Anderson answered that OMB was waiting on better clarification on the term "state lost revenue" included in the Congressional bill. He explained there had been a question about the community portion under CSLFRF, which had yet to be answered. 10:08:26 AM Representative Josephson looked at the nonprofits line on page 5 of the document (also located on page 61 of the bill). He asked whether the grants to nonprofits line also included funds to assist in additional burden due to surges in need of service. Mr. Anderson replied that the grants to nonprofits was very similar to the FY 21 capital supplemental item, which would be worked out in more detail as the process progressed. The issue would take collaboration between the two legislative bodies, OMB, and the department. The factors should be taken into consideration for the management of the program. Representative Josephson asked whether the governor intended to ask for assistance for public defenders to provide parity with money the legislature provided to the district attorney. Mr. Anderson replied that he had not heard anything about the possibility. He deferred to the Legislative Finance Division (LFD) for further detail if desired. Co-Chair Foster remarked that he did not recall seeing any governor's amendments adding more funding for public defenders. He noted that LFD staff were nodding in agreement. Representative Josephson referenced domestic violence relief funding. He believed the CS did a good job restoring lost federal funding. He discussed that the state had begun cutting grants to domestic violence shelters in FY 18, which he characterized as an unfortunate policy call. He asked for verification that the CS did not remedy the lost state funds. Mr. Anderson answered that it was his current understanding. 10:10:53 AM Representative Wool referred to the $75 million in ARPA funds allocated to capital projects [at the bottom of page 5]. He asked if the funding was for things like water, sewer, and broadband. He asked if there were rules attached to the funding. Mr. Anderson answered that the $75 million in CSLFRF funds for the capital budget were reserved for sewer, water, and/or broadband. Co-Chair Foster added that how the money would be spent would be determined in the capital budget process. Representative Carpenter referenced the $1.4 million UGF capital outlay for troopers under the Department of Public Safety [that had been denied by the subcommittee]. He highlighted the $410 million [in UGF replacement] coming from the federal government. He asked if there was room withing the federal funds to find $1.4 million for public safety. Co-Chair Foster answered that the committee could certainly discuss the issue currently or it could be addressed in the amendment process. He believed Representative Carpenter made a good point about the ARPA funding coming in. He explained that during the budget subcommittee process there had been a lot less clarity in terms of the incoming federal funds and how much the state could use to offset. He thought that the committee could be more open to the issues as more information was received. He opened the question up to the DPS subcommittee chair, Co-Chair Merrick. Co-Chair Merrick replied that the $1.4 million capital outlay was for tasers and different equipment for troopers that were not hired. 10:13:15 AM Co-Chair Foster relayed that he was hoping to allow the public to get a better understanding of the changes in the CS compared to the governor's budget. He highlighted some of the changes in the bill. The CS added $3.3 million for public broadcasting, $450,000 for Alaska Legal Services to maintain flat funding, and $370,000 for the Kuskokwim ice road starting in Bethel. The CS did not contain any education formula funding as early and forward funding had been included in a separate bill. The bill added $5 million for Pre-K. Under DHSS, $3.4 million for a tribal compact regarding child welfare using recidivism funds. The bill reversed the governor's proposal to use $16 million in AMHTA funds and used UGF instead. Under DOL, the chief of staff position was removed and the Janus funds of $20,000 were restored. He added that the CS reinstated the structure and funds that had been vetoed in FY 21. Under DPS, the CS denied $1.4 million in capital outlay for troopers and $1.4 million for funding vacant trooper positions. The CS added $210,000 UGF for two tax auditor positions under DOR. Under DOT, the AMHS was forward funded for 18 months primarily with CRRSA funds and some UGF. The CS accepted the governor's $20 million decrement to the University budget and backfilled $15.7 million for lost revenue relief at a net decrease to the University of $4.3 million. Co-Chair Foster noted the bill did not contain a PFD; the governor had a separate bill, and the committee may hear a bill on the topic later in the week. He imagined the PFD would be taken up during the amendment process in committee and on the House floor. 10:16:07 AM Co-Chair Foster continued to highlight the major changes in the CS. School bond debt and REAA were funded at 100 percent. The CS fully funded community assistance using $21.3 million in FY 21 and $17 million in FY 22 to bring the fund back to its fully capitalized level of $90 million. The CS accepted the governor's proposal to use $60 million in AIDEA reserves. He noted it had been determined later that the number needed to be $114 million. He stated the issue would be taken up during the amendment process. The CS added $1 million for the redistricting board. Co-Chair Foster moved to ARPA funding highlights. The CS included $6 million for VOCA. He detailed that the CS used 70 percent of the ARPA funds for the current budget and 30 percent for the following year. The CS allocated $125 million to community relief, $30 million to small businesses, $30 million to small businesses, $30 million to nonprofits, and a minimum of $310 million in capital funds (the inclusion of broadband funding increased the capital number to $420 million). He asked if there were any questions prior to moving to the capital and operating items in the supplemental budget. Representative Carpenter asked about the assessment of where the budget put the state in regard to the deficit. Co-Chair Foster replied that the budget was below the adjusted base of the previous year by $197 million. He believed the budget was a good deal below the budget passed the previous year. The budget could be compared to the enacted budget from the previous year, the management plan, and the adjusted base. He explained the adjusted base was the hardest to get under. He reiterated that the budget was below the adjusted base by $197 million. He noted that the governor's budget used $60 million in AIDEA reserves and if the legislature swapped that fund source with UGF, it would mean the budget was $137 million below the adjusted base. Additionally, the same applied for school bond debt if the legislature did not use Medicaid lapsing funds it would also impact the numbers. He asked his staff for any additional comment. 10:19:39 AM Mr. Anderson confirmed that the current CS for FY 22 was $197.5 million under the FY 21 adjusted base. He elaborated that the way the governor had funded his budget would have required a small draw. The CS was $233.7 million under the governor's budget. There was a small surplus in the current CS prior to consideration of the PFD. He stated it could also be compared in the spring forecast and any increased revenues. Representative Carpenter stated his understanding that the CS was roughly $200 million [below the adjusted base]. He noted the legislature had not yet had conversations about new revenue measures. He referenced the deficit of around $1 billion. He asked if the goal was to roughly fix the deficit by approximately $200 million with $1 billion in federal funds coming in. He surmised that the CS would only dedicate about $200 million in debt reduction. Co-Chair Foster answered that it was in comparison to the prior year's numbers. He asked Mr. Anderson to elaborate on the surplus. Mr. Anderson replied that he did not have the surplus total on hand. He agreed that Representative Carpenter was correct that the CS only designated $410 million UGF swap to create room [inaudible]; for FY 22 the number was $175 million. He stated it was a decision for the legislature to determine how and where to use the funds and how to balance what the legislature had chosen for UGF swaps to take care of the necessary items versus money going directly to take care of communities and nonprofits that could not be used toward a surplus or paying down the deficit. 10:22:56 AM Co-Chair Foster asked to hear from LFD. He knew LFD had been working to identify the surplus, which had been a bit of a moving target because it depended what ARPA funds were used to offset [other funds]. Initially the issue was that revenue had been a moving target. He noted that the spring revenue forecast had provided a better idea. They were working to pin down the revenue number in order to determine how much could be applied to the PFD for example, and how much the legislature may want to draw from the Constitutional Budget Reserve (CBR) or Permanent Fund Earnings Reserve Account (ERA). Representative Carpenter looked at the high level picture and stated the document did not include a line item specifying how much would be spent on deficit reduction. He remarked it was not clear to him or the public that the legislature was dedicating a certain amount of money to reduce the state's deficit by a given amount. He was curious what the thinking was when the state was taking in $1 billion in federal funds and one of spending requirements was reducing the deficit. He stressed that the deficit had to be addressed somehow. He stated that the deficit reduction would either come from revenue from tax of some sort or in reductions to services the state did not have enough funding to pay for in the long-term. He wondered if [federal] funds would help bridge to either of the solutions. Alternatively, he wondered whether the money would be spent only on services, which would result in kicking the can down the road until the federal funding was gone. 10:25:25 AM ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION, provided remarks on the conversation topic. He explained that between the CS and the education funding bill, not including the capital budget or PFD, there was a surplus of about $640 million. The governor's capital budget was about $62 million, which included over $100 million of Alaska Housing Finance Corporation (AHFC) bonding. He noted the bill had not been heard by the committee. He estimated that the capital budget could potentially use up to $200 million of the $640 million surplus. He elaborated that on the higher end, there would be $440 million of the surplus remaining for a PFD before draws from another source would have to be found. Mr. Painter addressed Representative Carpenter's question on the amount used for debt reduction in FY 22. He referenced the $83 million of UGF swap [with ARPA funds] in FY 22 and $91.9 million UGF debt service swap [with ARPA funds] for FY 22 [at the bottom of page 4 and top of page 5 of the document]. Combined, the total was about $175 million for deficit reduction in FY 22. Representative Wool stated that he did not really know what it meant when people said the state's deficit $1 billion. He noted that the CS and the governor's budget were within $200 million of each other. He remarked that the deficit jumped out when looking at a statutory PFD at a total of $2 billion. He stated that the PFD was not addressed in the CS, and it included a $600 million surplus, some of which would go to a capital budget and some would go to a PFD. He continued that if it was enough of a PFD to satisfy legislators and the governor, there would be no deficit; however, if it was not enough, the legislature would have to find more funds in the CBR; or in the ERA, which he did not support. He stated that without the PFD as a budget item, there was no deficit. He remarked that it was even more difficult to put a number on it because there was currently no PFD number. Co-Chair Foster addressed Representative Wool's question about whether there was a deficit. He stated that even when backing out the $175 million in federal funds, the CS was still below the prior year budget by almost $200 million. He considered the surplus of $640 million and backed out the federal funds used to offset UGF, the money used for the AHFC bond proposed by the governor, and the ARPA funds, which still resulted in a surplus. He noted the scenario assumed not paying a PFD. He stated that Representative Wool was saying there was no deficit, it just depended on the size of the PFD. He played devil's advocate and considered the perspective of Alaskans who wondered why the PFD was playing second fiddle to everything else. He highlighted a belief that the PFD should be paid out at the start; therefore cuts [to government services] were necessary. He stated that the issue all depended on how a person saw the deficit being calculated. 10:30:30 AM Representative Rasmussen asked how much the state had received in royalties for FY 21 and the anticipated amount in FY 22. Mr. Painter answered that he did not have the numbers on hand. Co-Chair Foster moved to the supplemental budget items. He shared that many of the supplementals had been submitted in the governor's budget. Additionally, there were some ARPA supplementals. He asked Mr. Anderson to provide detail. Mr. Anderson referenced two documents titled "Capital Supplementals" and "Operating Budget FY21 Supplementals" dated 4/27/21, distributed by Co-Chair Foster's office (copy on file). He relayed that the documents had previously been one document the committee had received the previous week. Representative Carpenter asked for clarification on the documents Mr. Anderson was speaking about. He noted he had three documents, two with the same name. Mr. Anderson clarified that the correct "Operating Budget FY21 Supplementals" document included columns labeled "item" and "request." The addition of the columns allowed him to quickly reference the items. He explained that the "request" column [in the Operating Budget FY21 Supplementals document] and the "requested" column [in the "Capital Supplementals" document] referred to where each item came up in the conversation about being added to HB 69. Identifiers included: governor's request, ARPA (with limited flexibility, original governor's supplemental items, and House Finance Committee changes (labeled "(H)FIN ARP." [note: there was a last identifier "(H)FIN" discussed by Mr. Anderson at approximately 10:35 a.m.] Mr. Anderson pointed to the document titled "Operating Budget FY21 Supplementals" and addressed item 5 for the Department of Corrections institution management under the director's office. He detailed there was a fund source swap of $5 million UGF with $5 million in federal funds. He explained that the references added up to the $235 million UGF swapped with CSLFRF funds [previously discussed in the document titled "FY22 House Committee Substitute (CS1) Summary"]. He highlighted that the document showed where the CS replaced funds. He explained that the method had been used because the governor's HB 81 had included an unallocated fund source swap, specifying the legislature would give OMB the authority to determine the funds at a later time. He elaborated that Legislative Legal Services had advised that the method was not sound practice and could open the legislature to the risk of a lawsuit. Legislative Legal had recommended a line item swap to show OMB and the governor's office where the legislature wanted to swap fund sources. He explained that the fund source swap items in the CS were large pots of money in an effort to avoid a "nickel and dime" approach. Mr. Anderson moved to item 30 on page 2 related to the Alaska Psychiatric Institute with the identifier "(H)FIN." He explained the identifier meant the change was a House Finance decision. He detailed that the governor had requested a supplemental item using $6 million of AMHTA reserve funds to fund the Alaska Psychiatric Institute (API). He elaborated that the CS swapped all AMHTA reserve funds used in the governor's proposed budget with UGF. 10:36:04 AM Mr. Anderson relayed he would not go through each of the line items unless requested by the committee. He moved to the FY 21 "Capital Supplementals" document. He remarked it was untraditional to include capital supplemental items in the operating budget, albeit it was becoming less and less untraditional. He explained that there were certain things that worked better to roll into one supplemental with operating and capital items because of the relationship FY 21 had with the FY 22 budget due to COVID funding including CARES, CRRSA, ARPA, and the Elementary and Secondary School Emergency Relief Fund (ESSER). He added that some of the capital items had not been funded the prior year. He explained it had been easier to include all capital budget items (that were easily taken care of) in one location. Mr. Anderson referenced the "Capital Supplementals" document and explained the identifiers under the "requested" column. The identifiers were the same as the ones used in the operating supplemental document, with the addition of one new identifier shown on lines 13 and 14 on page 2 labeled "Gov/(H)CS Mod." He explained the governor had designated a different fund source for the two Department of Environmental Conservation capital supplemental items. The CS swapped the funds with the traditional AHFC dividend funding source per direction by the co-chairs. The remainder of the capital items included were mostly governor items that had been easy to accept with no major questions. Representative Josephson asked about the $4 million the Department of Law sought for the recruitment and housing of prosecutors. He stated that the governor had wanted to use Higher Education Fund money. He wondered where the request ended up and thought it would have been included in the supplemental. Mr. Anderson answered that the item was not currently included in the budget. He noted that the item was still out there for consideration. He relayed there had been numerous questions about whether DOL should be in the housing industry. He detailed that as the budget increment had been written, DOL would own and operate the housing. Co-Chair Merrick interjected that the item was being considered for the FY 22 capital budget. 10:40:06 AM Representative LeBon looked at lines 25 and 26. Vice-Chair Ortiz asked if Representative LeBon was referencing the "Capital Supplementals" document. Representative LeBon pointed to lines 25 and 26 of the "Capital Supplementals" document related to the AHFC HOME Investment Partnership Act in the amount of $5 million [line 25]. He asked if the funding source was prior COVID funding receipts or ARPA. He asked how AHFC utilized home ownership assistance. He asked if it was supplementing mortgage or rent payments. Mr. Anderson deferred the question to LFD. Mr. Painter answered that the funding was an ARPA appropriation. He relayed there had been a previous RPL for similar funds from CRRSAA; the bill included a carryforward of the funds. He clarified the increments referenced by Representative LeBon were associated with new funds in CRRSA the governor submitted as a separate amendment. He explained the funds were not included in the governor's ARPA bill because he had already submitted it as an amendment; therefore, the committee added the governor's amendment to the bill. He did not know how AHFC planned to administer the program. He remarked that nationally there had been discussion in many states about how the program would work because it was a new funding source. He believed someone from AHFC could answer the question. Representative LeBon stated that the devil was in the details. He looked at the home ownership assistance increment [on line 26]. He asked if the state would be helping people to purchase a home and stay in a home. Additionally, he wondered if the state would look to see if there was a claim made on the money by a homeowner. He stated it could be statewide and was not targeted for one community. He highlighted that AFHC was responsible for underwriting mortgages statewide. He asked if a homeowner was required to be in default in order to receive assistance. He wondered whether a homeowner was ineligible for assistance if they had been able to maintain their current payment to protect their credit rating but had struggled in other ways. He noted he was not looking for an answer at present, but the increment brought forward the questions. 10:43:19 AM Representative Carpenter looked at line 77 under the "Operating Budget FY 21 Supplementals" document showing a reduction of $21 million of other funds. The increment was classified as "(H)FIN ARP." He observed that the increment related to Commercial Passenger Vessel (CPV) tax. He asked for an explanation related to the fund source. Mr. Painter clarified that item 77 should be labeled as governor [instead of (H)FIN ARP]. The item was part of the governor's budget, correcting an error in the FY 21 appropriation bill. He explained that the FY 21 operating budget inadvertently funded the incorrect year for the shared taxes for the CPV tax. He detailed that instead of funding the calendar year 2020, the budget inadvertently funded calendar year 2019 for the second consecutive year. Item 77 corrected the error. He furthered that in calendar year 2020 there were no cruise ship sailings, resulting in a reduction of $21.2 million. The House Finance bill used ARPA funding to backfill lost revenue, whereas the governor's bill had only included the reduction due to correction of the error from the previous year. Representative Wool referenced lost revenue from cruise ship gambling receipts. He asked where the money was normally used. He wondered whether it was being made up with federal funds. Mr. Painter answered that it was a UGF fund source that was allocated various places determined by the legislature. He detailed that the funding was deposited into the General Fund in FY 20 and in some years, there had been proposals to use the funds in the Capital Income Fund or another source. He explained it was included in the broader calculation of lost revenue as it was a UGF source. Co-Chair Foster shared that he wanted to give members time to look over the documents. He relayed members could ask additional questions during the afternoon meeting. He proposed pushing the amendment deadline to the following day at noon with the intent to take up amendments on Thursday. 10:47:57 AM Representative Thompson appreciated the additional information provided during the meeting and believed it was helpful for the public process. Co-Chair Foster thanked Representative Thompson for making the request [to hear additional information]. He believed it was important for the public to understand the work being done by the legislature. Representative Wool asked what CSLFRF stood for. Mr. Anderson replied that CSLFRF stood for [Coronavirus] State and Local Fiscal Relief [Recovery] Funds. Mr. Anderson responded to a question [that was inaudible] by confirming CSLFRF was one fund source from the federal legislation that had passed. Representative Edgmon asked for verification CSLFRF was the $1 billion [in federal funding coming to Alaska]. Mr. Anderson confirmed that the funding was $1 billion in what some people termed to be discretionary funding. Representative Wool understood the guidance was coming out from the federal government on May 10 [11]. He interpreted that the words state and local [in the acronym CSLFRF] implied it was possible the funds could be used to offset local lost revenue in addition to state lost revenue. He referenced the $80 million [in grants to local governments] for community relief. He thought it sounded like the distribution rules may allow funding to offset a local revenue loss. Mr. Anderson answered that everyone was awaiting clarification on the issue. He noted there was a bit of concern about how much to trust the current information on the topic. He shared that he had spoken with OMB the previous day and highlighted an example related to bed tax. He detailed that communities had lost bed taxes due to lost tourism. He noted there was not a statewide bed tax. He explained that rating the risk of allowing bed tax to be used as lost revenue, there was a chance Treasury may determine bed tax was not an allowable use of the funds, which would mean communities would be responsible for paying the money back. He explained there was currently some caution on the parameters and OMB was trying to get clarification and was working with LFD. He highlighted the importance of collaboration between the legislature and administration in terms of the sideboards the legislature would implement for the grant programs. HB 69 was HEARD and HELD in committee for further consideration. HB 71 was HEARD and HELD in committee for further consideration. 10:52:13 AM AT EASE 11:14:46 AM RECONVENED Co-Chair Foster announced that LFD was available to help committee members with the amendment writing process. He noted there were no bills on the afternoon meeting. He intended to answer any additional questions on the operating budget that afternoon. He handed the gavel to Co- Chair Merrick. 11:15:55 AM AT EASE 11:15:59 AM RECONVENED