GENERAL SUBJECT(S): Overview: Office of Management and Budget Fiscal Year 1999 Cash Flow The following overview was taken in log note format. Tapes and handouts will be on file with the Senate Finance Committee through the 21st Legislative Session, contact 465-2618. After the 21st Legislative session they will be available through the Legislative Library at 465-3808. Time Meeting Convened: 9:00 A.M. Tape(s): SFC-99 #23, Side A (000 - 537) PRESENT: X Senator Parnell X Senator Adams X Senator Torgerson X Senator P. Kelly X Senator Donley X Senator Green X Senator Leman Senator Phillips Senator Wilken ALSO PRESENT: ANNALEE MCCONNELL, Director, Office of Management and Budget; JACK KREINHEDER, Senior Policy Analyst, Office of Management and Budget; ROSS KINNEY, Deputy Commissioner, Department of Revenue; BOB POE, Commissioner, Department of Administration; SENATOR TIM KELLY; SENATOR DRUE PEARCE; DAVID TEAL, Director, Division of Legislative Finance; aides to committee members and other legislative members. LOG SPEAKER DISCUSSION O00 CO-CHAIR PARNELL Convened Senate Finance Committee meeting. He noted members present and that Annalee McConnell would be giving an overview this morning. 047 ANNALEE MCCONNELL Director, Office of Management and Budget was invited to join the committee. She introduced Ross Kinney and said he would be explaining the handout provided members. 069 ROSS KINNEY Deputy Commissioner, Department of Revenue was invited to join the committee. He explained the handout provided by Office of Management and Budget. Re: Cash receipts/Disbursement, Executive Up-date: 1 February 1999. Required disbursements because of the budget. Difference between revenue and receipt; not a budgetary situation. Flow of revenue into the State and disbursements out. Dealing with two issues: page 2, summary of cash flow, actual and projected. Spreadsheet divided into two sections: general funds and constitutional budget reserve fund. 154 BOB POE Commissioner, Department of Administration was invited to join the committee. He explained the general fund section and noted the available cash balance at the end of each month. Borrowed only when needed to keep around $150 million cash balance. In February borrowed last $50 million, which brought us now to cap. 194 Explained school debt, occurred February through June. 201 Other fund transfers that also occur February through June. 201 Payroll 214 Borrowing needed above $700 million cap as noted right hand corner of handout. 221 Cash outflows that will help to alleviate some of the pain. 239 Additional borrowings above $700 million cap. SENATOR TORGERSON Asked if any money was brought forward from prior years? MR. KINNEY Referred to incoming revenue. Explained how this is listed under general funds, July and August (spreadsheet) in response to Senator P. Kelly. Does not actually disburse all money during the year as it is appropriated. They move expenditures forward as they need cash to deal with. Liabilities that they incur each year in July were explained. Realized as expenditures and revenue the prior year. 279 MR. KINNEY How they deal with cash flow. 284 MR. KINNEY Additional borrowings. Difference between expenditures. Recorded expenditures beyond revenues. $700 million from the CBR fund. 307 MR. KINNEY Difference between revenues and expenditures. Will not know until about November or December. 317 SENATOR TORGERSON Asked if they were spending the appropriations on something else? MR. KINNEY No. SENATOR TORGERSON Does the spreadsheet show this money? MS. MCCONNELL Explained how this process worked. Does not actually take cash and put it in different place. It was just a phasing of the cash flow situation reflected in their budgetary authority. Explained the flow of monies in and out. Will not overspend the monies appropriated in the budget. SENATOR TORGERSON Not convinced money for capital projects not taken and spent on other projects. MR. KINNEY Reasserted the money was not taken for other projects. Explained investment returns. Wanted to keep monies in CBR fund as long as possible in order to realize maximum returns. Have authorization to spend money but do not move it until they realize the project. He explained the utilization of cash to meet obligations. 380 CO-CHAIR PARNELL Asked Mr. Kinney to clarify dates. He wanted to know cash available dates and wanted to have this specific. 386 MR. KINNEY Referred to bar graph on page one of the OMB handout. This should explain it sufficiently. Sometime in April it comes up to limits. Cash flow basis is critical about March 1. Referred to an historical view of cash flow (he held the only chart up for the committee members to see). Somewhere around first part of April is critical for general funds. CO-CHAIR PARNELL Asked further clarification. MR. KINNEY Explained the rule has been used for years and years. CO-CHAIR PARNELL Perhaps the rule should be reexamined. MR. KINNEY Must insure they have good handle on information flow and expectation on what is coming in and what is going out. There is a volatility in revenue as a result of oil prices. An adequate cushion is needed for expenditures. Their crystal ball is not accurate. MS. MCCONNELL No reason to change from the $150 million balance. Have tried to reevaluate the rule. CO-CHAIR PARNELL Memorandum of understanding with Office of Management and Budget. Is this contingency still in place and adopted by the Governor? MS. MCCONNELL Have not changed this memorandum. Other steps can be taken to transfer funds to the general fund. Refers to the "sweep provision". Revenue anticipation; can borrow against this. Previously had been no limit on the CBR and could always borrow against it. Had been no specific limit and had never been in issue. Now have different operating environment. (refers to spread sheet, page 2) In past years have had more chance of paying back CBR. SENATOR ADAMS Asked if this included supplemental requests or unforeseen expenditures? MR. KINNEY Responded to Senator Adams. (pause)$1.8 million for expenditures. SENATOR ADAMS Past legislation had a benchmark of $700 million? Should that particular language be deleted or another amount be put in? CO-CHAIR PARNELL Should pose this question to the Administration as to what they are going to do. MS. MCCONNELL Explained they could just remove the $700 million and put in language as used in prior years. Would be preferable not to have specified amount. Would not want to get into situation after session if there was a problem with lower oil prices. $ll.58 was the expected oil price. She further explained the limit on the CBR draw. They will live within the caps as established by the Legislature. CO-CHAIR PARNELL Last year gave a good indication as to how this matter was going to be treated. Republicans put upper limit; with price of oil today now faced again with same situation. Would rather put specific limit rather than giving Administration a blank check. MS. MCCONNELL Perception of the public may be a blank check. Hoped press will report that there is not a blank check as the Administration cannot spend more than is appropriated by the Legislature. SENATOR LEMAN Would the Governor really have come to the table to discuss reductions if there was not the cash flow problem? He felt this was a good thing to happen. MS. MCCONNELL There was not a limit to the CBR in 1998. Limit was not the driving force into the Governor coming to the table. 531 CO-CHAIR PARNELL Concluded comments. There was a short recess for a change of co-chair to begin the bill hearing. SENATE FINANCE COMMITTEE LOG NOTES 02/08/99 SFC-99 -5- 2/8/99