SENATE BILL NO. 144 "An Act making appropriations for the operating and loan program expenses of state government and for certain programs; capitalizing funds; amending appropriations; making supplemental appropriations; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." 9:05:40 AM Co-Chair Hoffman related that the Operating and Mental Health budgets were before the committee. He said that the administration would offer an additional presentation on the Governor's Supplemental requests. He relayed that the committee substitutes for the Operating and Mental Health budgets before the committee were a rearrangement of the Governor's budget requests, in a form that both the Division of Legislative Legal and the Division of Legislative Finance (LFD) believed were appropriate. 9:05:52 AM Co-Chair MacKinnon MOVED to ADOPT the committee substitute for SB 144, Work Draft 30-GS2564\D (Wallace, 1/29/18). Co-Chair Hoffman OBJECTED for discussion. 9:06:32 AM DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, explained the committee substitute. He stated that version D, with a few exceptions, used the same fund sources, same amounts, located in the same areas of the budget, as the Governor's proposed bill. He noted that the exceptions were several contingent appropriations; The Constitutional Budget Reserve (CBR) language pertaining to $425 million and the $1.1 million appropriation for "hot shot" crews in the Department of Natural Resources. He stated that the division treated contingencies as the maximum value, while the Governor's budget treated them as a minimum. He related that with those two differences, the transactions were the same. He offered that the point in creating the current version, rather than using the Governor's budget, was to make the conforming technical changes to make the bill readily amendable. He said that format changes would not be as issue future iterations of the legislation but for all practical purposed the bill mirrored the Governor's proposal. 9:08:27 AM Senator Micciche spoke to the maximum and minimum value difference related to the contingency language. He wondered whether the bottom line changed because of the differing viewpoints. Mr. Teal replied in the affirmative. He stated that the number in the current version was higher, because the administration counted General Fund spending as zero (in anticipation of federal dollars for the "hot shot" program), while the LFD counted it as $1.1 million - the total that could be spent. 9:09:19 AM Mr. Teal said that there was a two-page document that explained some of the larger changes, "Summary of Changes from the Governor's Operating Bill and CSSB 144(FIN) Work Draft 30-GS2564\Wallace, 1/29/18"(copy on file) and a Word document that tracked changes, "SB 144 ver A to D from Leg Legal 1/30/18 CS Zero". 9:09:54 AM Co-Chair Hoffman explained that any substantive amendments would be addressed by each budget subcommittee and brought before the committee after the public process. He noted that the committee was awaiting the draft sent by the other body, as well. 9:10:20 AM Co-Chair MacKinnon surmised that the budget as proposed by the Governor did not include community assistance. Mr. Teal replied that community assistance was in the budget in the sense that a supplemental appropriation has been included, bringing the year-end FY 18 balance up to $90 million, which allowed for a $30 million appropriation for distribution to communities in FY 19. He pointed out to the committee that there was no FY 19 funding for community assistance, which LFD believed should exist by law. He explained that FY 17 excess earnings should have been deposited for FY 19, this had not been done; currently, communities would receive $30 million in FY 19, which will drop to $20 million in FY 20. 9:11:49 AM Co-Chair Hoffman argued that the Governor was short funding the future and was not following the intent of the pervious legislation pertaining to community revenue sharing, which was that communities should be able to depend on the fund source for planning purposes. 9:12:49 AM Co-Chair MacKinnon noted the second item, pensions, had not been funded to the requested amount determined by the previous actuarial numbers. Mr. Teal replied that the June 2016 valuation, which had determined the FY 19 rates, reflected that the state assistance contributions to retirement programs, should have been approximately $299 million. He said that in 2015 there had been a large deposit made to the retirement systems, with the intent that the 3-year rate setting lag should be truncated to 2 years. He said that in an effort to shorten the lag, the June 2016 valuation had been updated with new assumptions, which had resulted in an impact to state assistance by $35 million - mostly due to exceptional returns experienced in FY 17. He relayed that the Governor's bill had built in retirement savings under a group waiver for retirees that would reduce drug costs and could result in an additional savings. He stated that the Governor's budget had those savings built in immediately, even though they were not yet achieved. He suggested considering whether the committee wanted to build in potential savings before they had materialized, or whether traditional actuarial methods should be used. He worried about taking advantage of savings that had not yet materialized. 9:16:25 AM Co-Chair MacKinnon expressed some trepidation about the administration taking the $3 billion cash infusion in an attempt to increase the funding ratio for retiree healthcare. She said that the projected unfunded pension obligation was growing. She spoke to the tax credits for industry and when those credits should be paid. She asked for details, based on current statute, concerning short funded tax credits in the Governor's budget. Mr. Teal suggested that in future talks concerning retirement benefits that the committee should note the actuarial projections over the next 20 years. He said that the funding ration had fallen over the last few years, and would continue to fall, and that future contributions were expected to increase. He questioned decreasing contributions now, in the face of falling funding ratios, and increasing contributions in the future. Mr. Teal spoke to the tax credits. He explained that the statutory minimum would be $206 million, and alternative interpretation was as low as $49 million. He said that the administration supported the $206 million level of funding. He stated that the Governor's budget contained $27 million for oil and gas tax credits, which was what the cost of debt service would be for issuing bonds to fully buy the outstanding tax credits and then make the debt service payments. He reiterated that there was no money deposited into the oil and gas tax credit purchase fund in the budget but was instead a $27 million appropriation to pay debt service on bonds that would be used to buy credits. 9:21:08 AM Co-Chair Hoffman clarified that the cs did not address any of the issues under conversation but would be discussed by the committee during the process of amending the legislation. 9:22:00 AM Co-Chair MacKinnon believed that the budget was lower than it should be to meet the state's responsibility to industry. 9:22:58 AM Senator Micciche asked how legislation, and the consideration of the passage of certain bills, would be included in the budget. 9:23:34 AM Co-Chair Hoffman replied that the statutorily required items under discussion would be the base of the budget. 9:24:23 AM Senator Micciche understood that if legislation passed during the budgetary process, it would be reflected in a final budget document. 9:24:42 AM Mr. Teal stressed that LFD would have the three fiscal notes that were built into the budget: oil and gas tax credits, senior benefits, and school trust fund - preferably as fiscal notes. He said that, for example, the division would have preferred a $206 million appropriation in the bill for tax credits, with a fiscal note that reduced the amount and changing it to debt service. He relayed that there were supplemental appropriations in the Operating Budget, he emphasized that the bill version before the committee was not an LFD recommendation, but a rewrite of the Governor's proposal that contained the fiscal notes and the supplemental appropriations included by the administration. He said that it would be up to the amendment process to change the bill. 9:26:26 AM Co-Chair Hoffman stated that the practice for 20 years had been to not include supplemental requests in the Operating Budget. 9:27:04 AM Senator Micciche wondered whether the supplemental items included in the bill could be highlighted. 9:27:21 AM Co-Chair Hoffman hoped to address the supplemental items at a later date. 9:27:43 AM Senator Olson remarked that there was a difference between the philosophical and political implications related to the budget. He asked whether there was an actual financial difference between using fiscal notes in the budget and the way the administration had presented the budget proposal. Mr. Teal replied that there was no difference as long as the legislation passed; if money was going to be put in the budget that was contingent on the passage of a bill, if the fiscal note matched the amount of money that was currently in the budget - there was no real difference. 9:28:46 AM Senator Olson spoke of the dwindling constitutional budget reserve (CBR), and the possible use of the earnings reserve. He wondered whether the Governor's approach was faulty. Mr. Teal thought that transparency was in the eye of the beholder. He believed that the administration was trying to present a budget that they thought was was transparent. 9:29:44 AM Co-Chair Hoffman WITHDREW the OBJECTION. There being NO OBJECTION, the proposed committee substitute was adopted. SB 144 was HEARD and HELD in committee for further consideration.