SENATE BILL NO. 19 "An Act making appropriations for the operating and loan program expenses of state government and for certain programs, capitalizing funds, amending appropriations, and making reappropriations; and providing for an effective date." 9:03:57 AM KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, stated that she had provided a summary of the highlights of the bills at a previous meeting. She referred to "Operating Budget - UGF/DGF/Other/Fed Summary by Department; Senate Bill 19/ House Bill 65" (copy on file). She noted that the summary included the mental health portions of the operating budget, so the outline included both SB 18 and SB 20. The total budget for mental health was $240.891 million. She looked at page 2, which was a comparison of the unrestricted general fund (UGF) changes from the FY 13 management plan to FY 14 governor proposed budget. Co-Chair Kelly queried the total budget the mental health portion of the budget. Ms. Rehfeld responded that the mental health operating budget totaled $240.891 million; which included UGF of $205.921 million. 9:06:37 AM Ms. Rehfeld shared that the total number that was proposed for the operating budget was $9.795 billion. The UGF was just over 59 percent at $5.7 billion; designated general funds (DGF) was 8 percent at roughly $777.4 million; other funds were $1.283 billion at 13 percent; and federal funds were approximately $2 billion at 20 percent of the total budget. She explained that the budget process begins in July, and it takes months to complete the budget proposals. She remarked that the supplemental budget bill would be introduced the following day, and the budget amendments would be due to the legislature on the 30th day of the session. She stressed that the budget work continued throughout the year. The structure of SB 19 contained 36 sections, and was 67 pages long. Ms. Rehfeld looked at Sections 1 through 3 of SB 19, which were known as the number sections of SB 19. These sections totaled $6.741 billion. The sections were organized by department; and by appropriation and allocation within the department. She remarked that some particular components in these sections may be specific appropriation language, such as "carry forward of program receipts." Sections 2 and 3 were the breakdowns of the funding sources. Section 2 was funding sources by department and Section 3 was the total of all funding sources for Section 1. Ms. Rehfeld explained that Section 4 was the language section of SB 19. She stated that the language section included funding for various corporations: Alaska Aerospace Corporation; Alaska Housing Finance Corporation (AHFC); Alaska Permanent Fund Corporation; Alaska Industrial Development and Export Authority (AIDEA); the state catastrophic and working reserve funds; shared taxes under the Department of Commerce, Community and Economic Development (DCCED); and other various items. Ms. Rehfeld stated that Section 13 was the particular appropriation of $25 million for education, which was addressed at a previous meeting. This appropriation was specific funding that was targeted for energy costs in school districts, but was allocated and distributed to school districts on the adjusted average daily membership. Ms. Rehfeld explained that Section 20 was known as the "fuel trigger." This section was introduced some years prior in an appropriation language, rather than building ongoing costs into the base of agencies' budgets. The preference was to include a fuel trigger at different prices. The fuel trigger estimate going into FY 14 was at $36 million; allocated twice a year. There was currently a thorough analysis on individual departments' fuel and utility costs, in order to determine if this particular language should be changed. Co-Chair Kelly wondered if the fuel trigger estimate was $36 million. Ms. Rehfeld responded in the affirmative. She looked at page 53 of the bill, which showed the allocation based on $100 per barrel or more of $18 million that was distributed twice a year. She furthered that the current year had distributed approximately $7 million. The departments were currently adjusting, and would provide estimates at a later date. 9:11:44 AM Ms. Rehfeld stated that Section 23 was the debt service obligations. This included debt service and bond payments for previously approved debt. One of the largest components of this section was the School Debt Reimbursement program on page 59, lines 17 through 21. The projection for FY 14 school debt reimbursement would be $128.263 million. Section 24 was the federal and other program receipts language. It was Legislative Budget and Audit (LB&A) language that addressed federal receipts as it came to the State and State agencies. Section 25 contained a number of capitalizations for different funds, like disaster relief and the replenishment of the revenue sharing program. Section 26 outlined the fund transfers. The largest fund transfer was the Public Education Fund transfer of $1.2 billion to forward fund education. Section 27 was specific to the State retirement systems unfunded liability: $312.5 million for Public Employee Retirement System (PERS); $316.8 million for the Teacher Retirement System (TRS); and $4.5 million for the Judicial Retirement System. The retirement system budget was roughly a $20 million over the current year budget. Section 28 was language related to salary and benefits for various bargaining unit agreements in the University of Alaska. Currently, the general government, supervisory, and confidential employees units were under negotiations. Co-Chair Kelly wondered if the benefits that were not up for negotiation were ratified year by year. Ms. Rehfeld replied that the language in the bill referred to all of the bargaining agreements that were ratified by their members, so the request continued those that were already agreed upon. Co-Chair Kelly wondered if the legislature had to approve the benefits year by year. Ms. Rehfeld replied that the legislature had to approve the benefits year by year. Senator Hoffman looked at Section 27. He relayed that there were new requirements that local governments declare their liabilities for PERS and TRS. He wondered if Department of Administration (DOA) had addressed this issue. Ms. Rehfeld replied that it was a new requirement, and furthered that the State had agreed to fund beyond the current cap of 22 percent for PERS and 12.56 percent for TRS. There was not a final decision whether there would be a change to reflect that increase in the State's financial statements. 9:16:46 AM Senator Hoffman wondered if there was communication between the municipalities and DOA regarding the possibility of substantial liabilities on the municipalities. Ms. Rehfeld replied that DOA had been in contact with the municipalities about the issue, and how it would appear on their financial statements. She shared that it was a continuing conversation that DOA had been engaged in. Ms. Rehfeld explained that Section 29 was for shared taxes to local governments and other entities: the fisheries tax; fuel tax; cost recovery; and cruise ship seven ports of call. Section 32 was the budget reserve language, that would allow a draw on the statutory budget reserve (SBR) should the revenue be insufficient in FY 14 to cover the projected expenditures. Sections 33 and 36 were the lapsing provisions, retroactivity, and effective dates. She remarked that the majority of SB 19 would take effect July 1, 2013 for FY 14. Ms. Rehfeld restated that the FY 14 Operating Budget included full-funding and forward-funding for K-12 education; Medicaid and other formula programs; Permanent Fund appropriations for dividend and inflation-proofing; energy assistance; tourism marketing; and the bargaining unit components that were a work in progress. Co-Chair Kelly requested more information regarding the catastrophic and the working reserves. Ms. Rehfeld replied that there were two components. There was a reimbursable services agreement to pay for working reserve, which was terminal leave or leave cash-in for employees. The working reserve included a payroll deduction that was built into the rates and the budget positions; and a reimbursable services agreement. There was language in the appropriation bill that would allow funds to "sweep" into working reserve and the state catastrophic reserve. 9:21:23 AM Co-Chair Kelly requested further information regarding the impact of the operating budget for years out to 2020, from the FY 08, FY 09, and FY 10. Ms. Rehfeld agreed to provide that information. Senator Dunleavy wondered if there was a process to determine how much State money was needed to support the $2.7 billion in federal receipts. He specifically queried whether it was in addition to the budget, or if it was written into the budget. Ms. Rehfeld replied that there were specific match requirements and maintenance requirements for many capital requests. The federal funds were often matched with the State contributions. She offered to provide more detailed information at a later date. Senator Dunleavy wondered whether the federal funds were linked to the State, or the States were linked to the federal funds. Ms. Rehfeld responded that if the state had participated in a federal program, the state agreed to commit a certain amount of resources in order to receive the federal dollars. Senator Dunleavy remarked that many Alaskans felt that the budget was growing, but revenue was not keeping up with the budget. He wondered if there was a discussion regarding possible statutes or regulations that would reduce the cost of government. Ms. Rehfeld replied that there were conversations each year that focused on the current priorities that were already written in statute. SB 19 was HEARD and HELD in committee for further consideration.