HOUSE BILL NO. 70 "An Act making appropriations, including capital appropriations, reappropriations, and other appropriations; making supplemental appropriations; making appropriations to capitalize funds; and providing for an effective date." 4:01:58 PM Co-Chair Merrick relayed that the committee heard an overview of HB 70 on May 4, 2021. She shared that she had been working closely with Senator Click Bishop's office to craft the capital budget. Co-Chair Foster MOVED to ADOPT the proposed committee substitute for HB 70, Work Draft 32-GH1507\G (Dunmire, 5/17/21). Co-Chair Merrick OBJECTED for discussion. Co-Chair Merrick explained that the budget was significantly different than the governor's proposed FY 22 capital budget. Representative Josephson asked if the changes included the governor's amendments. 4:03:23 PM TALLY TEAL, STAFF, REPRESENTATIVE KELLY MERRICK, answered that she would point out when she was comparing the Committee Substitute (CS) to the governors amended or original budget. Co-Chair Merrick relayed that the meeting was a general overview and would not focus on individual projects. Ms. Teal pointed to four reports from the Legislative Finance Division in members' packets (copy on file). The reports were labeled 1 through 4. She began with the first report [report 1] showing the unrestricted general fund (UGF) expenditures by capital budget agency summary governor structure compared to the CS. She indicated that the CS spent roughly $325 million in UGF compared to $120 million in the governors original budget. She explained that the governor had used 2 non-traditional funding sources in the original budget that the legislature rejected. The governor proposed using $86 million of Alaska Housing Finance Corporation (AHFC) bonds for aviation and highway matching funds for the Department of Transportation and Public Facilities. In addition, he proposed using approximately $18 million of the Village Safe Water matching funds from the Department of Environmental Conservation (DEC) totaling $104 million in AHFC bonds. She furthered that there had been $10.5 million appropriated from the rural Power Cost Equalization (PCE) funds for rural fuel projects. Without the non-traditional sources, the governors proposed UGF spend was about $224 million. She indicated that the governor proposed a $350 million general obligation (GO) bond package in HB 93 [HB 93-G.O. Bonds: State Infrastructure Projects] for capital projects. Many projects in the GO bond bill had been moved to the capital budget. 4:06:11 PM Ms. Teal turned to report 2 showing the capital budget agency summary governor structure all funding sources. She pointed to column 4 comparing the governors amended budget to the House CS and reported that $101 million of the GO bond funding was removed and $620 million was an increase in federal receipt authority but was not new funding. She explained that the committee had heard a presentation on the Statewide Transportation Improvement Program (STIP) and reminded the committee of the two methods the state could provide funding for STIP projects. She elaborated that one option was to give one lump sum appropriation; it did not provide legislative oversite of how the funding was spent. The other option was to break the appropriations into allocations to show what projects the department planned on funding with the STIP. Prior STIP funding had been done both ways and the CS version chose to use allocations with some modifications. The method added two accounts: a project acceleration fund and a project contingency fund. They were separate pots of money that allowed for administrative flexibility while setting a more realistic amount for each of the appropriations. She stressed that the funding was structured differently and was not an increase for the Department of Transportation and Public Facilities (DOT). Vice-Chair Ortiz asked about the project acceleration fund. Ms. Teal answered that it was in the numbers section. She restated that the reason the federal authority total was higher was due to the new funding structure. Representative Thompson asked if there was a listing showing which items were different than the original bill. Ms. Teal replied in the affirmative and noted that the information was in report 3. She turned to report 3 containing the Capital Budget project detail by agency governor structure. She noted that the documents were available online. She explained that column 1 showed the governor's amended budget, column 2 was the Senate version CS, column 3 reflected the House CS, column 4 compared the governors budget to the House CS, and column 5 compared the House CS to the Senate CS. She highlighted a few projects. She pointed to the West Susitna Road Access Project on page 1, that was originally in the GO bond bill and was funded at the governor's request in the amount of $8.5 million. She moved to page 2 and reported that the Alaska Travel Industry Association (ATIA) was originally funded at $5 million but the funding was eliminated in the CS because of funding from the American Rescue Plan Act (ARPA) dedicated to tourism. She referred to the $1 million appropriation for the Matanuska-Susitna Arctic Winter Games and noted that it was not in the governors request but was included in the CS. 4:11:12 PM Representative Wool asked if the Voice of the Arctic appropriation on page 2 was in the governors original request. Ms. Teal replied that the increment had been in the governor's amended budget. Ms. Teal turned to page 6 and cited two Department of Fish and Game (DFG) projects that had not been funded in the capital budget process the previous year. The projects had been included in HB 69 [HB 69-Approp: Operating Budget/Loans/Funds] [the operating budget] and were not included in the current CS. Vice-Chair Ortiz asked what specific projects she was referring to that were not included. Ms. Teal answered that the projects were the Pacific Salmon Treaty Chinook Fishery Mitigation and the Wildlife Management, Research and Hunting Access projects. Representative Josephson cited the Wildlife Management, Research and Hunting Access project on page 6. He asked whether it had been included in the current years operating budget. Ms. Teal answered in the affirmative and reminded the committee that supplemental capital items were included in the operating budget. 4:13:27 PM Ms. Teal turned to page 8 and pointed to the Statewide Deferred Maintenance, Renovation, and Repair project and noted that the appropriation was slightly lower than the governor's request due to the amount available in the Alaska Capital Income Fund. She moved to page 9, referencing the Fairbanks Youth Facility that had been a GO bond project. She noted the facility was not funded by UGF. She thought that LFD would be best to speak to the specifics. She understood that through a bond refinancing $18 million became available for a capital project, therefore, the governor chose to appropriate the funds for the youth facility. Representative Rasmussen looked at the 1167 fund source and asked what fund it was. ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION, explained that tobacco bonds had originally been sold from the proceeds of a lawsuit two decades earlier, which capitalized the Northern Tobacco Security Corporation, a subsidiary of the Alaska Housing Finance Corporation (AHFC). The tobacco corporation needed to refinance its debt, or it could become insolvent in the coming years due to the decline in tobacco sales. He elucidated that to obtain a better rate on the refinancing of the tax exempt bond the proceeds could be appropriated to a qualified capital project under Internal Revenue Service (IRS) rules. The proceeds were estimated to be $18 million. The governor had selected the youth facility because it cost $18 million, which was a criterion for obtaining the refinancing. 4:16:01 PM Representative Josephson had further questions about the wildlife access research and hunting project on page 6. He asked about the $10 million. Mr. Painter deferred to the Office of Management and Budget (OMB) for the answer. NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, stated his understanding of the question related to the project for $10 million on page 6. He replied that the funding was either the Dingle Johnson or Pittman Robertson federal funding for wildlife and hunting access projects. He reported that the project was not related to the navigability or statehood defense project. The project was the annual recurring capital program through DFG that built out hunting access projects. Due to a truncated session in the prior year, the department had not received the funds and it was included in the supplemental. The administration moved some of the wildlife management activity funds into the operating budget because of the characteristics of the appropriation. 4:18:31 PM Representative Josephson reasoned that the transaction appeared typical and perfunctory and was not unique. Representative Wool asked about the Fairbanks Youth Facility capital upgrade to an existing facility. He asked which youth facility it was. Mr. Steininger answered that it was the Juvenile Justice facility in Fairbanks. Vice-Chair Ortiz asked about the $10 million for wildlife hunting access. He asked if there was a breakdown of the $10 million expenditure. Mr. Steininger answered that DFG posted the solicitations for the spending after the appropriation was made. He relayed that currently historical allocations were available. Representative Rasmussen stated it was her understanding that the project funding utilized federal receipts and not UGF. Mr. Steininger answered in the affirmative and added that receipts from hunting licenses (Fish and Game Fund) were used as matching funds. 4:20:42 PM Ms. Teal moved to page 9, under the Department of Health and Social Services and cited the Palmer Pioneer Home and Veteran's Home roof replacement increment. She indicated that the project was originally in the GO Bond bill and was included in the CS. She moved to page 11 and directed attention to the $12.5 million line item for the Alaska Vocational Technical Center (AVTEC), which was originally in the GO Bond legislation. She communicated that the appropriation was originally $19.5 million but it was discovered that the reduced amount was sufficient. She advanced to page 12 and referenced the Prosecutor Recruitment and Housing to Address Sexual Assault and Sexual Abuse of a Minor Case Backlog project. The project had originally been a supplemental request and was included in the CS. She moved to the Department of Natural Resources (DNR) on page 15. She listed the following 4 projects: Wildland Firefighting Aircraft Replacement, Wildland Fire Engine Replacement, Statewide Firebreak Construction Program, and the Statewide Park Sanitation and Facility Upgrades. She relayed that they were all initially in the GO Bond package. She pointed to one new project; the Snowmobile Trail Development Program and Grants, which was not included in the governor's original request but was included in the CS. Co-Chair Merrick believed that it was called the Snow Tracks Program. Ms. Teal affirmed the statement. Ms. Teal referenced the last two DNR projects; Alaska Wildlife Troopers Marine Enforcement Repair and Replacement and Boating Upgrades, Haul Outs, and Vessel Replacement and noted that they were originally GO Bond projects. 4:22:58 PM Ms. Teal turned the Department of Transportation and Public Facilities (DOT) projects, which accounted for the bulk of the numbers section. Co-Chair Merrick asked members to contact her office with specific questions regarding DOT. Representative Josephson looked at page 15 and asked about the Arctic Strategic Transportation and Resource Project (ASTAR) project. He wondered whether it was a permanent appropriation item. Mr. Steininger answered that the ASTAR project had been appropriated in phases over recent years. It was not permanent but was a recurring project requiring additional distinct funding. Representative Edgmon asked about projects that were not included. He asked why the Alaska Travel Industry Association (ATIA) project had been removed. He understood that the ARPA funding was different than the original appropriation for marketing. Ms. Teal stated it was her understanding that the ARPA funds would cover the same expenses. She added that the original funding was the vehicle rental tax and with the tourism downturn the receipts were likely insufficient. 4:25:29 PM Mr. Painter interjected that the administration directed $5 million in Coronavirus Aid, Relief, and Economic Security (CARES) Act funding to ATIA for marketing Alaska as a COVID safe tourism destination. The House added $10 million to ATIA from ARPA funding as well. The funding may not be for traditional tourism marketing but $15 million had been directed to ATIA. Ms. Teal pointed to page 38 related to two University of Alaska (UA) projects and noted that they were originally GO bond projects [UAA Building Energy Performance Upgrades and Bartlett and Moore Hall Modernization: Restrooms and Sanitation Infrastructure]. She underlined that the Courts Statewide Deferred Maintenance item on page 39 was also a GO bond project. She commented that her remarks on the numbers section, Section 1 of the CS was complete. She briefly described Section 2 as a summary of funding in Section 1 by agency and Section 3 as listing statewide funding by fund source. 4:26:44 PM Ms. Teal reported that the language section of the budget began in Section 4, on page 33 of the CS. She highlighted that Sections 7 through Section 10 were reappropriations from agencies to the Alaska Capital Income Fund. 4:28:22 PM AT EASE 4:29:12 PM RECONVENED 4:29:51 PM AT EASE 4:30:33 PM RECONVENED Mr. Painter clarified that in Section 4 the typical revised program receipt language [Revised Program Legislative (RPL)] referencing AS 37.05.146(a), (b), and (c) was typical. He noted that in subsection (e) on page 33 the language was unusual. He explained that it prohibited increasing receipts received by the Alaska Gasline Development Corporation (AGDC) and was included in the Senate version of the bill. He elaborated that (e) (1) on page 33, the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) funds for DOT were excluded from the RPL process. He turned to page 34, Section 2 that listed the Coronavirus State and Local Fiscal Recovery Funds, in ARPA as excluded from the RPL process. In addition, he read the following that was excluded from the RPL process: th (3)funds appropriated by the 117 Congress (A) for infrastructure, jobs, or part of the American Jobs Plan, as proposed by the President of the United States, or a similar bill or plan; (B) related to novel coronavirus disease (Covid- 19) or economic recovery; or (C) for natural gas pipeline expenditures. Mr. Painter noted that subsection (f) stated that the exclusions did not apply to prior authorizations made in January 2021. Representative Josephson asked if any federal funding received after session ended and before the coming special session on August 2, 2021, could not be expended until August 2. Mr. Painter answered that the funds could also be appropriated in the coming special session beginning on May 20, 2021. 4:33:20 PM Ms. Teal turned to Section 5, on page 34 of the bill. She offered that the language was standard language that was omitted in the prior year. Section 6 was standard language related to the Natural Petroleum Reserve-Alaska (NPRA) impact grants. She reiterated the prior information regarding Section 7 through Section 10. She moved to Section 11 and commented that the item had been an operating item that was moved to the capital budget. She pointed out that Section 12 through Section 14 returned to reappropriations to the Capital Income Fund. She communicated that Section 15 through Section 23 on pages 42 through page 46 included reappropriations within districts from lapsing grant funds from the Department of Commerce, Community and Economic Development (DCCED). She turned to page 46, Sections 24 through Section 26 and noted they contained lapsing language and effective dates. Co-Chair Merrick asked if there was anything to highlight on report 4. Ms. Teal identified report 4 that included the reappropriations within district [Section 15 through Section 23] and noted they matched the language in the Senate CS version. Representative Josephson cited report 1 that showed a UGF spend of $324.6 million. He asked what it did to the surplus of a similar amount. Mr. Painter answered that the House's operating budget included some fund changes using ARPA dollars for debt service that was discovered to be unallowable. The surplus had included fund changes that could not occur. However, the same amount of revenue replacement might be applied to other areas of the budget. He remembered that the amount of surplus was enough for a $500 PFD assuming the capital budget was closer to the governors version. The CS version was $150 million higher so the surplus would be that much less. However, how the ARPA funds could be spent was a moving target therefore, it was difficult to compare the Houses budget to a surplus. Co-Chair Merrick reminded the committee that unique funding sources were used originally in the capital budget that once removed, inflated the House CS. Representative Wool deduced that the House CS compared to the Senate CS and was $155 million higher. In addition, the House CS versus governors version was $200 million higher and the ARPA funding added $200 million to the House budget. He noted that the Senate operating budget numbers were currently unknown, therefore the residual amount was unknown. Mr. Painter was not prepared to speak about a fiscal summary on the fly. 4:38:45 PM Vice-Chair Ortiz referenced Mr. Painter's mention of the recently released ARPA guidelines. He asked if the committee would hear a summary about how the guidelines changed in relation to the budgeting process. Mr. Painter answered that the new information was improved, and he believed the committee would hear from Mr. Steininger on the updates. Co-Chair Merrick WITHDREW her OBJECTION to the adoption of the CS. There being NO OBJECTION, Work Draft 32-GH1507|G was ADOPTED. HB 70 was HEARD and HELD in committee for further consideration. Co-Chair Merrick reviewed the schedule for the following morning.