SENATE BILL NO. 250 "An Act making and amending capital, supplemental, and other appropriations and reappropriations; making a reappropriation under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; making appropriations to capitalize funds; ratifying certain expenditures; and providing for an effective date." Co-Chair Parnell announced that, unlike the usual practice of having each department present their requests, the Office of Management and Budget will present an overview of all items. He qualified that if Committee members wish to hear from certain departments, they could be called before the Committee at a later date. ANNALEE MCCONNELL, Director, Office of Management and Budget appreciated the early attention given to this bill, noting that there are a number of issues that would benefit from the legislature's prompt action. Ms. McConnell detailed how the procedures in handling the supplemental budget had undergone significant changes in the last six years. She stated that the emphasis is now to try to address the majority of funding needs in the regular budgets. Ms. McConnell noted however, that a couple of areas have not been dealt with in the regular budget for the past several years. She gave an example of fire suppression pointing out that since 1987, the legislature has not appropriated enough money to operate the program. She referred to earlier discussions about using five-year averages to determine an estimated amount to appropriate into the fund. The five-year average, excluding the highest and lowest years is approximately $11.7 million, according to Ms. McConnell. She stated that the supplemental request is for $6.4 million to cover fires that already occurred since the start of the fiscal year, plus and additional $3.6 million to be ratified to cover fires that occurred in the last fiscal year after the legislature adjourned. Co-Chair Parnell clarified this request only covers the fires to date and does not cover any fires that may occur between now and June 30, 2000. Ms. McConnell affirmed and said the Administration would provide updates of any fires that may occur before the legislature departs in May. Ms. McConnell directed the Committee's attention to Section 1 of the bill, which addresses funding for the Gulf Coast Storm. She said she would detail the costs of this natural disaster later in her presentation. She did say there is a need for approximately $400,000 to cover costs associated with other major winter storm activity outside of the declared disaster area. Co-Chair Parnell directed the discussion back to fire suppression and read from AS 26.23.050, the provision that allows the governor to reauthorize funds appropriated for other purposes to cover fire suppression costs. He spoke of a letter sent by the Senate Finance Committee co-chairs to the governor suggesting this funding alternative be used to keep the supplemental request lower. Co-Chair Parnell asked if this was attempted. Ms. McConnell replied that the Administration did look at doing this, but noted that at the time the fire disaster was declared, the fire activity was so intense it was expected to cost about $9.2 million. The Office of Management and Budget determined that simply having an executive budget adjustment of this amount was not the best decision. She warned that if a large sum of money were taken from programs such as Medicaid, a supplemental request would still be necessary. Co-Chair Parnell asked if this were an "all or nothing" situation or if reappropriation of a percentage of the needed amount was considered. Ms. McConnell responded that the departments were already dealing with the unallocated budget reductions imposed by the legislature in the FY00 Operating Budget along with allocated reductions. Because these are major changes, she stressed they need to be dealt with at the legislative level. Ms. McConnell next addressed the formula funding programs noting a total of $21 million is needed in 13 different program areas that were funded at less than the required level. She noted leasing commitments with the private sector that were short-funded in the FY00 budget. Ms. McConnell pointed out that the issue of the Medicaid "option list" was discussed with the legislature last year during budget deliberations and it was determined that it should not be imposed in order to stay within the funding amount. She also said that intent language was inserted into the FY00 Operating Budget stating that a supplemental budget request could be used to fully fund the longevity bonus program. Co-Chair Parnell interjected stressing that no such discussion relating to Medicaid options took place in the Senate Finance Committee. He qualified that Representative Therriault did make related comments in the House Finance Committee asking the department to not cut options. Ms. McConnell agreed that Representative Therriault and Representative Mulder made the comments. However, she countered that in discussions held during Senate Finance Budget Subcommittee meetings and Senate Finance Committee meetings, she had argued that if the legislature was not going to fully fund certain services such as those provided by Medicaid, there needed to be explicit intent language. Co-Chair Parnell thought that the statutes are clear in stating that if there is inadequate funding, the Medicaid options are cut off in a rational order. Ms. McConnell told the Committee she has asked the Department of Health and Social Services to prepare an estimate of what will happen if no additional funding is allocated to meet the current options list. She learned that the "implications will be staggering." Items such as emergency dental care and other services that have been determined to be important would be eliminated, according to Ms. McConnell. Ms. McConnell talked about some unexpected items, the largest being the need for an additional $2.1 million for pupil transportation. She detailed the expected 3.5 percent contractual cost increase that turned out to be much higher in Anchorage, Kenai and Fairbanks. She pointed out that the state has no control over the cost of the negotiated contracts between school districts and carriers because it is a reimbursement program rather than a fixed amount calculated per student or the distance of travel. She referred to a detailed breakdown by school district in the backup material provided by the Office of Management and Budget to the Committee. Co-Chair Parnell asked what attributed to the increased contracts. Ms. McConnell replied it is essentially a lack of competition. Senator Adams asked how the state could contain the cost of this program when there are two components of the program: one operating on a contract basis for the service and the other with school districts operating in-house. Ms. McConnell told of earlier suggestions for a reimbursement calculated on a per-pupil basis rather than the current formula system. She predicted this might spur competition between carriers. Senator Wilken shared with the Committee that the Department of Education and Early Development Senate Finance Budget Subcommittee is addressing the matter and will have a report for the full Committee. Senator Green was concerned that there is no incentive to keep costs down because of the full reimbursement system. She knew of no other programs that received reimbursement just because costs increased. Co-Chair Parnell noted that contracts with private prisons operated in this manner as well. Senator Green said both should be addressed. Senator Wilken stated that efforts are being made by the department and the subcommittee to institute "checks and balances" that would bring more competition into the process. Co-Chair Parnell reminded members that although the deadline to introduce personal legislation has passed, the Committee could sponsor a bill addressing some of these issues so long at the interested member is willing to carry the bill and do the legwork. Ms. McConnell continued speaking to increased needs for the formula funding. She hoped the Committee would allow the Department of Education and Early Development an opportunity to explain the complicated K-12 formula program. She did point out that there were several ways the department was able to compensate for some of the under- funding. She gave an example of an $11.8 million reduction from the authorized level that was the result of lower enrollment and an increase in federal impact aide. Co-Chair Parnell asked why the department is projecting a $19 million decrease in FY01 but only giving back $11.8 million for the current year. Ms. McConnell answered that a $2.7 million decrease was taken internally for some programs such as the correspondence school. In addition, she said, Co-Chair Torgerson identified school enrollment was probably less than what school districts reported and subsequently $3.9 million was reduced in the authorized budget. Co-Chair Torgerson was correct in that prediction, according to Ms. McConnell. Co-Chair Parnell asked if the $11.8 amount is an estimate and could change. Ms. McConnell confirmed and noted that the amount could change when the department receives the school district's student count in November. Co-Chair Torgerson asked if the $19.9 million funding decrease is based on the adopted budget or on the projected budget. Ms. McConnell explained that the decrease is the amount calculated using information supplied by the school districts and is a reduction to the FY00 authorized level. Ms. McConnell next pointed out the lower caseloads for the Adult Public Assistance Program (ATAP) and said that the welfare program continues to produce good results, which accounts for a savings of $1.5 million that will be placed into the Childcare Assistance program. She stressed that in order to keep the welfare caseloads down, the state must provide childcare assistance so participants can continue working. Ms. McConnell noted federal funds were used to offset state expenses in frontline social workers and in subsidized adoptions. The subsidized adoption program is another formula program that was not funded at a sufficient level, according to Ms. McConnell. Co-Chair Parnell asked if the $1.5 million savings from public assistance was reflected on page five of the supplemental bill. Ms. McConnell noted the transfer shows up in two places in the bill: Section 9 (a) Education and Early Development, and Section 10 (k) Health and Social Services. Ms. McConnell noted the other area where other funds were used to offset general fund requirements is in the Longevity Bonus Program. She explained the Administration intends to use the funds leftover from the Y2K Readiness appropriation to fund the shortfall. She reminded the Committee that the program was under-funded by $2.4 million and the appropriation contained intent language directing the Administration to come before the legislature with a supplemental request for the remaining funds. Senator Phillips asked what is the average age of participants. She stated that the drop in necessary funding from year to year is not substantial despite the phase-out of the program. Ms. McConnell said she would have the department provide the average age of participants and projections for the out-years. Ms. McConnell then addressed the Power Cost Equalization (PCE) program. She said the Administration recommends using the $8 million dividend from Alaska Industrial Development and Export Authority (AIDEA) to fund the remainder of the program. She said the one-time dividend is the result of a change in accounting rules. She detailed the role of capital gains and realized and unrealized earnings. Co-Chair Parnell wanted to know if AIDEA money is currently used to fund PCE. Ms. McConnell responded that there was a "carry forward" of $2.2 million in the PCE fund plus 60 percent or $5.5 million of the Four Dam Pool revenues and approximately $200,000 in interest revenues. The remaining amount, she said was to come from the National Petroleum Reserve Alaska (NPRA) grant, which does not have a resolution yet. She stressed there still is the issue of next year's PCE to fund. She noted that AIDEA is working with the Administration and the legislature to find a long- term solution to PCE. Co-Chair Parnell restated his question as to whether or not AIDEA funds are currently used to fund PCE. Ms. McConnell answered it is not. Ms. McConnell finished her presentation with an overview of the Central Gulf Coast Storm. She handed out a letter from Phil Oates, Commissioner of the Department of Military and Veterans Affairs addressed to the speaker of the House of Representatives and the President of the Senate. The letter contained a spreadsheet detailing the costs associated with the disaster. She stated the total cost from communities, businesses, private individuals, utility companies and state agencies has been reported to date as $16.3 million. She described the process of the request to the president of the United States for a declaration of Federal Emergency Management Agency (FEMA) disaster. Senator Adams asked what disaster statute is being used in this situation. Ms. McConnell replied that the current statute is being used because SB 101, which changes the definition of disaster, was not transmitted to the governor yet because of a technicality. Co-Chair Parnell pointed out that this is a natural disaster rather than an economic disaster, which is the type of disaster SB 101 addresses. Ms. McConnell told the Committee the Administration is hoping to have a decision from the president of the United States this week as to whether or not the storm will be declared a federal disaster. Senator Wilken referred to the requested transfer from the Y2K appropriation to the Longevity Bonus Program and wanted to know if the Y2K money doesn't lapse into the Constitutional Budget Reserve if not spent by March first. Ms. McConnell corrected the date is March 31, 2000. Senator Phillips had a question on the Central Gulf Coast Storm regarding the Matanuska Electric Association (MEA). He noted that from 20,000 to 30,000 residents of the Municipality of Anchorage were affected by the power outages from MEA. Senator Green pointed out that it is listed under the Matanuska-Susitna Borough. Ms. McConnell also thought it is was covered in the Matanuska-Susitina Borough claim but said that the department would confirm. Senator Phillips wanted to know the accounting process of this expenditure would be. Senator Green had two questions relating to the Central Gulf Coast Storm. She wanted to know if the agencies deducted the expenses for the normal activities that would have been performed if there were no disaster. She also asked if insurance would cover some of the claims that were filed. Ms. McConnell replied to the first question by saying that some agencies are reporting the entire cost of their expenses if they otherwise have no related activity in the area of the disaster. However, only the additional disaster costs are covered. She gave an example of the Department of Transportation and Public Facilities' normal activity to only plow two inches of snow from the highway but will claim expenses for the extra effort required to clear an avalanche. She assured the Committee that a verification process would determine the actual costs of the disaster. Ms. McConnell answered the second question by saying that some of the reported damages claimed under the FEMA declaration will eventually be covered by insurance. However, because people could be unsure if insurance would cover all of the damage, claims were filed for those damages.