SENATE BILL NO. 74 "An Act making supplemental and other appropriations; and providing for an effective date." ." Department of Health and Social Services Section 5 (a) Department of Health and Social Services Energy Assistance Program Budget Review Unit (BRU) Additional federal funds for Low Income Heating and Energy Assistance (LIHEAP) grants. $3,351,300 federal funds JANET CLARKE, Director, Division of Administrative Services, Department of Health and Social Services, testified that these federal funds are a result three unbudgeted releases in December 2000. One release, she explained, came about after an increase in the block grant by the US Congress as a result of the Balanced Budget Act. She stated that the other two increases relate to contingency funds that were released to all 50 states due to the high costs of fuel. Ms. Clarke remarked that the entire amount would be distributed as grants to approximately 8,600 households and that all households that qualify under the low-income guidelines would receive these funds. Section 5 (b) Department of Health and Social Services Medicaid BRU Replace FY 01 funds, which had to be used in July to pay prior year Medicaid claims to assure continuous payment of claims in April. $8,970,100 federal funds $6,030,000 statutory designated program receipts Ms. Clarke testified this request is for claims received in June 2000, which the department did not have sufficient authorization to pay. She noted that the item has been "pushed forward" into FY 01. Co-Chair Donley asked if the department, "used 2001 funds to pay off 2000 debt." Ms. Clarke explained that in the state's accounting system, the Medicaid program is operated on a "cash-basis". She elaborated that the department pays bills when they are received rather than the date of service. She stated that these bills were received in June 2000, and that because the department did not have adequate funds to pay them, the department delayed payment until July 2001. Senator Leman wanted to know if any of the payments made were for services not authorized by the legislature within the last two years. Ms Clarke assured that they were not. She stated that the services are all authorized under the Medicaid statute. Senator Green asked if the supplemental request arose from an underestimate of the need for services, the number of patients served, or increased expenses. Ms. Clark replied all were a factor and remarked that the department "severely underestimated" the amount of Medicaid claims in FY 00. She noted that although the legislature appropriated a supplemental request during the last legislative session, the cost of Medicaid services consistently rose above what the department predicted. Senator Green commented that $22 million was appropriated the previous session and, added to the $15 million request before the Committee, the FY 00 underestimation totals $37 million. Ms. Clarke stressed that the original appropriation was based on the lowest possible caseload and expenditure scenario. Senator Green wanted to know if the increases were a reflection in the number of people requiring services, if more services were being provided to a static number of patients, a matter of increased medical costs, or a combination. Ms. Clarke replied that it is a combination of an increase in the number of patients being served and higher medical costs. She noted the increases in pharmaceutical costs plus the increased utilization of medical services. Senator Green asked if a particular state or federal action accounted for the increase in the number of participants. BOB LABBE, Director, Division of Medical Assistance, Department of Health and Social Services, explained that federal requirements play a part in the increase. He gave prescription drug mandates as an example where the state has little choices. He also noted the increasing costs of health care for the disabled along with the larger elderly caseload. However, he pointed out the legislative decision to expand coverage to more children under the KidCare program. He stated that medical costs are going up faster than anticipated and that the percentage increases are consistent across the nation. Senator Green asked how much of the underestimation is attributed to KidCare costs. Mr. Labbe responded it would take time to get that information. Senator Green requested those figures. Co-Chair Donley asked for an explanation of the $6,030,000 statutory designated program receipts (SDPR). "Where did that number come from?" he asked. Ms. Clarke offered a brief explanation of the Pro-share program. Co-Chair Donley expressed that he was more interested in knowing why that dollar amount was requested. Ms. Clarke responded that the $15 million that the department could not pay in FY 01 is a combination of federal funds and state matching funds. She explained the $6 million SDPR would be used as a state match to claim the $8.9 million federal funds, which is a 60/40 percent ratio. She continued that the revenue, or the cash the department would receive for the SDPR, comes from the Pro-share program. Co-Chair Donley again asked if the $6 million figure is an estimate and if the state already has that amount in SDPRs. Ms. Clarke referred to testimony given the previous legislative session where the department stated that the Pro-share receipts it could generate are governed by the "upper limit calculation." She reminded that if the department pays out $18 million, $10 million is returned which could be freed for state match purposes. She said the department calculated that upper limit in the spring of 2000 to be $20 million. She relayed that over the previous summer, the federal government became interested in states' use of the Pro- share funds and considered shutting down the program. As a result, she stated that the department recalculated its upper limit as $28 million in July 2000. Ms. Clark spoke of the overlap between the state and federal fiscal years. She remarked that it is in the state's best interest to make an additional Pro-share payment to offset the increased upper limit calculation during the first quarter of the state's FY 01, which is the final quarter of the federal fiscal year. Senator Wilken relayed that his office has been contacted several times with complaints that the Family Centered Services has been closed for the remainder of the fiscal year due to lack of funds. He asked if any of the supplemental appropriation would be used to reopen the center Ms. Clarke replied that the facility was impacted by the department's action the previous summer to immediately pay all valid Medicaid claims. She admitted that there was a "gap in payment" to nonprofit agencies such as the Family Centered Services and as a result of cash-flow problems. Senator Wilken wanted to know if the facility would be further affected before the end of FY 01. Ms. Clarke stated that assistance, including technical training and support, has been given to the facility to ensure the Medicaid claims are correct so they could be paid promptly. Mr. Labbe added that several meetings have been held and a plan was being devised to maintain the facility's viability. He warned that without adequate funding through the supplemental budget, there would continue to be cash-flow problem in the Medicaid program, which impacts the provider community. Senator Wilken then asked if the $15 million requested in the governor's fast track supplemental budget is adequate funding to avoid future shut downs. Mr. Labbe stated that the $15 million request only addresses the Pro-share payment made in July 2000. He stressed that additional funds were requested in SB 73, the regular supplemental budget request. Senator Green did not understand why this request needed to be included in the fast track supplemental. Ms. Clarke responded that the department has a cash-flow problem with the Medicaid program because the department was making larger Pro-share payments than anticipated. Senator Green referred to the method under which Pro-share operates and how the funds are reinvested, and asked if federal funds replace state funds. Co-Chair Kelly explained, "We are matching federal money with federal money." Senator Green then asked if there is a net use of state funds or if the federal funds were just shifted. Ms. Clarke replied that the state funds are needed initially to make the first payment. Senator Green wanted to know if the state really needed to expend funds. Ms. Clarke answered the state had to make the up-front payment to a government operated hospital, which would retain ten-percent of that payment and return 90-percent to the state. She continued that the 90-percent could then be used as a state match to reimburse the initial payment, and therefore requiring no general funds. Senator Green found it difficult to consider this fast track request, without also considering the regular supplemental request at the same time. She expressed that the state could not continue to pay for Medicaid in this manner. She was concerned about the impact in the future. Ms. Clarke stressed that the department operates the program in accordance with all requirements and would continue to do so until the rules change. She emphasized that eligible participants are entitled to services. Senator Green asked if the guidelines were set in federal mandate or state statute. Mr. Labbe replied that it is a combination of both and explained there are mandatory services and mandatory client groups under the federal Medicaid program and that there are also state options on services and groups. Senator Green wanted to know if the state has cost-containment control only over the state-option portions of the program. Mr. Labbe mentioned the options including reimbursement levels paid to providers. Senator Green asked if the state or the federal government determines "how you get in the front door", or "who qualifies for what services". Mr. Labbe responded that the state chose to participate in the Medicaid program several years after the federal system was established. As a result, he said, in order to participate, the state had to agree to cover certain people and to provide certain services. He noted that the state added additional services and groups of people who qualify for the program. Senator Green then asked if the state has investigated cost containment options to possibly curtail this "upward spiral". Mr. Labbe shared that the department has a "fairly aggressive" utilization management program and he detailed the provider reviews conducted and software packages utilized. He stressed that Alaska has one of the better systems in the county for editing incoming claims from providers. He qualified that there is a large caseload and general service costs. He spoke of the state statutes and regulations that govern reimbursement for hospitals and nursing homes. He opined that the state's reimbursement rates were "not unreasonable". Co-Chair Kelly referenced action taken by the legislature and the department for FY 99 to refrain from funding abortions through the state. He asked if the funds in question were being used for that purpose. Ms. Clarke responded that none of the funds contained in the fast track supplemental were intended for that purpose. Co-Chair Kelly then asked if during the exchange of Pro-share funds with the federal government, the funds are always contained under the Hyde Amendment or whether at any time they could be used for public funding of abortion. He wanted to know, "does it ever change from federal money?" Ms. Clarke did not know. Co-Chair Kelly requested the witness provide an answer sometime during the legislative session. Ms. Clarke delved into one reason this item was included in the fast track supplemental. She stated that the US Congress has taken steps to shut down the Pro-share program, and that the program is in a transition stage. She pointed out that the Health Care Financing Administration (HCFA) issued regulations in January 2001 that would severely curtail the Pro-share program. She shared that the Department of Law advises that if the additional Pro-share payment were made within 60 days, when the regulations become effective, the payment would fall under the upper limit contained in the current guidelines. If payment were delayed, she warned, the payment would be subject to the updated regulations and therefore only be eligible for $20 million federal funds. Department of Revenue Section 9 (b) Department of Revenue Administration and Support BRU Emergency replacement of air conditioner in computer room $31,500 general funds MIKE MAHER, Director, Division of Administrative Services, Department of Revenue, testified that the current system is over 19 years old and has been experiencing malfunctions. He spoke of $13,000 in repairs invested in the system and the $3,000 to $4,000 damage caused to computer systems as a result of overheating malfunctions. He shared that the servicing company has stressed that the unit has exceeded its usefulness. He listed the permanent fund program and the Tax Division as important programs that depend upon the system. Co-Chair Donley asked if the department had existing funds that could be used for this purpose. Mr. Maher responded that the department did not have dedicated funds and had planned to upgrade the system to try to extend its life for a couple more years, before the recent troubles arose. Senator Leman referred to mineral deposits found in the water flow system and wondered if that could be the cause of some of the malfunctions. Mr. Maher was unsure whether the system had a water filter, but stated that part of the difficulties were with the water flow as well as the building's booster pump failures, which automatically cause the system to shut down. Senator Leman asked if the corrosion of piping was a problem for the entire building or just this area. Mr. Maher answered that it was affecting the entire building, which he stressed is over 30 years old. Section 10 (a) State Debt Appropriate remaining balance of the general obligation bond redemption fund to the debt retirement fund $102,200 other funds (source not specified) Section 10 (b) State Debt Additional appropriation needed to meet FY 01 debt service obligations. $639,800 general funds DEVIN MITCHELL, Debt Manager, Treasury Division, Department of Revenue stressed the need to meet the state's obligations related to its Certificates of Participation in the School Debt Reimbursement program. He testified that the reason this item is included in the fast track supplemental request is because the payment is due before the regular supplement funding is appropriated. He warned that if the funds were not provided in a timely manner, the state would be unable to pay on its obligations. Mr. Mitchell explained that because two different programs utilize the debt retirement fund, one being the School Debt Reimbursement program, which reimburses municipalities for their debt, the state has issued a large amount of debt in the past several years as a result of HB 281 and SB 11 from the twenty-first legislative session. He detailed that the Department of Education and Early Development must make an appropriation request based on an estimation of the required reimbursement based on the municipalities' estimates of their annual debt issuance. He stated that the Department of Education and Early Development's estimate is $4 million, but that part of the appropriation appears to have been accounted twice in the FY 01 budget. He stated that the department had been able to use funds carried forward from previous years to address this in the past, but that this would not be possible in the current year, due to the double accounting of the funds. Department of Transportation and Public Facilities Section 11 (4) Department of Transportation and Public Facilities Northern Region Facilities BRU Deadhorse Combined Facilities project funded from the Federal Aviation Administration lease $53,600 federal funds KURT PARKAN, Deputy Commissioner, Department of Transportation and Public Facilities, testified that the department anticipated the Federal Aviation Administration (FAA) funds for the joint use of the Deadhorse facility for the FAA flight service station. He stated that the department has a Memorandum of Understanding with the FAA regarding the 35-year lease of a portion of the state-owned facility. He added that the FAA pays the maintenance costs of that building, which is the reason for this appropriation. Section 11 (3) Department of Transportation and Public Facilities Capital BRU Delong Mountain airport access study $281,900 federal funds Mr. Parkan detailed the "earmarked" project from the Alaska Congressional delegation, which is located on the Chukchi Sea near Kotzebue and serves as the port for the Red Dog Mine. He spoke of the difficult access to the mine, noting that the funds would be used to study the feasibility of constructing an airstrip to provide access to the mine and surrounding communities. He stressed the need for the fast track approval due to the impending lapse of the grant. Senator Austerman noted the $9.4 million construction estimate and wanted assurance that there is no match requirement from the state. Mr. Parkan affirmed that there is no state funding requirement and listed other projects that also qualified. He stressed that the department would not conduct the study but rather funnel the funds to the Alaska Industrial Development and Export Authority (AIDEA). Senator Wilken wanted to know if the constructed airport would be restricted to certain users. Mr. Parkan did not know specifically, but noted that facilities built with federal funds are required to be publicly accessible. Senator Wilken understood that the Delong Mountain Road is not accessible for all users and requested the witness investigate the matter. Mr. Parkan agreed to do so. Senator Wilken then asked who would maintain and operate the facility once it was constructed. Mr. Parkan responded that AIDEA is taking full responsibility and would contract for that service. Senator Wilken asked if the Red Dog Mine/Cominco would be responsible. Mr. Parkan stated he would ask about the relationship between AIDEA and Cominco and whether the corporation would provide some reimbursement. Senator Wilken requested answers to these questions. Senator Hoffman asked if this project were approved, would it affect other airport projects contained in the six-year plan? Mr. Parkan answered that it would not. Section 11 (1) Department of Transportation and Public Facilities Capital BRU Fairbanks International Airport equipment storage maintenance facility to be funded with Passenger Facility Charges $905,000 International Airports Revenue Fund and Section 11 (2) Department of Transportation and Public Facilities Capital BRU Fairbanks International Airport safety and maintenance equipment to be funded with Passenger Facility Charges $1,065,000 International Airports Revenue Fund Mr. Parkan explained that the state's international airports had begun to charge Passenger Facility Charges (PFC) maintenance fees to passengers after receiving approval from the FAA in October 1999. He shared that the department submitted a request to exempt those travelers residing in communities not connected by a road system and the subsequent decision to delay collection of the fees until this exemption was enacted. He detailed the process of gaining approval, which was received in April 2000. Mr. Parkan then addressed the need for the fast track approval caused by the FAA requirement that the state must expend funds within two years of the initial approval date of October 1999. He noted that the department must have a contract in place, and the equipment purchased before the deadline. He continued that a second reason for fast tracking the funds is to capture part of the summer 2001 construction season and build an enclosed building before winter with final work completed during the winter of 2001. He said that if the project were delayed a year, the cost of the project would rise due to inflation. Section 11 (5) Department of Transportation and Public Facilities Capital BRU Copper River Highway work done under the Consent Agreement $400,000 general funds Mr. Parkan explained this is the final piece of the consent decree of the lawsuit pertaining to construction along the highway and that it would settle the lawsuit and allow construction projects to continue. He warned that if this payment were not made, the matter would return to court and all previous progress would be lost. Senator Hoffman wanted to know the cost of not making this payment. Mr. Parkan could not anticipate the amount, but noted that the department's attorney's fees are "extraordinary" even when not involved in a lawsuit. Senator Hoffman wanted information from the Department of Law regarding the consequences if the case were to continue. Senator Green assumed that some of the Copper River Highway projects included in the supplemental budget could have been anticipated and therefore spared from the supplemental or fast tracked budgets. Mr. Parkan replied that discussions with the US Corps of Engineers occurred in the fall of 2000 and that the funds should be appropriated to capture the summer construction season. Co-Chair Donley commented, "We're finally trying to build a road somewhere and this is what happens." SFC 01 # 19, Side B 07:48 PM