CS FOR HOUSE BILL NO. 205(FIN)(Corrected) am(brf sup maj fld) "An Act making appropriations for the operating and loan program expenses of state government and for certain programs; capitalizing funds; making supplemental appropriations; and providing for an effective date." 4:05:30 PM Co-Chair Stedman discussed the agenda. He explained that LFD had been invited to present an overview. ^PRESENTATION: SHORT and LONG-TERM IMPACTS OF BUDGET 4:06:30 PM PAT PITNEY, DIRECTOR, LEGISLATIVE FINANCE DIVISION, discussed the presentation "State of Alaska - Short and Long-Term Revenue Impact and Impact on Budget Reserves" (copy on file). She stated that the presentation was a short slide deck that would illustrate the impact of the decline in the price of oil, as well as the impact on the POMV annual draw to the state. 4:07:04 PM Ms. Pitney spoke to Slide 2, "Traditional (non-PMOV) Revenue, FY19-FY29," which showed a line graph. She noted that she would show three slides with graphs that were all scaled the same. The graph on Slide 2 showed traditional revenue, largely made up of petroleum revenue. She pointed out that the state was under $3 billion in FY19 and expected to be at $2 billion in fall 2020. The blue bar showed the fall forecast. There were additional sources of revenue from entities other than oil: marijuana tax, motor fuel tax, and corporate income tax. Ms. Pitney noted that the red line showed a $600 million difference, on average, across the timeframe FY21 through FY29, so the state had $600 million less coming in through the traditional revenue streams. She said that the red line was based on $40/bbl. She stated that the current price of oil hovered close to $35/bbl. She relayed that assuming $35/bbl oil on an inflation adjusted basis would result in $700 million less; approximately $1.2 billion in traditional revenue. 4:09:16 PM Ms. Pitney discussed Slide 3, "POMV "Revenue, FY19-FY29," which showed a line graph. She explained that POMV took 5 percent of the permanent fund value on annual basis. She related that the POMV was calculated by only drawing from the fund the amount that, over time, the fund could continue to grow at inflation, so the fund value was strong for future generations. She said that at this point the state had $2.9 billion from the POMV in FY19. She relayed that the effects of the market were delayed in the POMV because it was on a 5-year rolling average. At the peak, the state would have $400 million less than expected from the fall revenue source. She discussed the slow recovery scenario: Slow recovery: FY20 ending balance matches actual balance as of 3/19/20. No growth in FY21, then 10 percent growth for 5-years, then 7 percent growth. Peak impact of $700 million in FY26. 4:11:40 PM Ms. Pitney reviewed Slide 4, "Total Revenue, FY19-FY29," which showed a line graph that combined traditional revenue with the POMV revenue. She said that the fall revenue had been expected to be $6 billion by FY29. She pointed out that the red bar was at 40/bbl and steady recovery, plus one draw with decent returns thereafter. She noted the $1 billion dollar difference at the peak of the decline in FY26. She said that if the state took an additional year to recover at $35/bbl, the difference was $1.5 billion less in revenue per year. She highlighted that revenue would go from $6 billion to $4.6 billion in the out years. She said that the amazing figures was the cumulative impact on revenue. Cumulatively, the gap between the fall forecast and the $40/bbl plus steady recovery, was a cumulative $8 billion in revenue that did not exist in the states revenue streams from what was considered last fall. She added that if oil stayed at $35/bbl, the figure increased to $11 billion. She stressed the significant differences in the states fiscal situation over the last two-week period. 4:13:39 PM Ms. Pitney showed Slide 5, "Scenario 1: $40/bbl, POMV impact, Senate Finance Budget without Dividend, no Stimulus," which showed a table using modest revenue decline. She noted that the slide showed a modest, steady recovery of the permanent fund. The UGF assumption reflected a drop from $4.8 billion in 2020, to $4.4 billion in 2022. The total spending, not counting supplementals, was $4.3 billion; there were $360 million in supplementals. Included in last years spending was a $1600 dividend, which totaled $1.1 billion. She said that because of the drop in revenue the division anticipated a $728 million draw on the CBR, after $142 from the CBR for the capital budget, and $172 million from the SBR for dividends. She relayed that the year-end balance (June 30, 2020) for the CBR was expected to be $1.5 billion. She furthered that coming into 2020 with the current spending level, additional capital budget items, and $100 million in supplemental items, the state would have a $300 million deficit (reflected on Line 12) without a dividend and without any money towards stimulus. The CBR would be drawn down to under $1.4 billion. She directed committee attention to Line 18, which showed the CBR balance for FY20 through FY22. She noted the ERA balance on Line 20, which was $16 billion in FY20, dropped to $12 billion in FY 21 and $10 billion in FY21, with lower returns into the ERA. She said that under this scenario, assuming no stimulus and no dividend, the deficit would be $500 million by FY22, with a CBR balance below $1 billion. The ERA balance would be 8.5 billion. 4:16:59 PM Ms. Pitney referenced Slide 6, "Scenario 2: $40/bbl, POMV impact, Senate Finance Budget $400/person Dividend, $100M Stimulus," which showed the same table as the previous slide with the assumption of a $400 dividend and $100 million in stimulus. She relayed that under the scenario, FY 20 remained the same, FY21 brought the deficit to $700 million and the CBR was drawn below $1 billion. She noted that there were no additional draws to the ERA beyond the POMV. She said that in FY22 there would be a $500 million deficit, before dividends or stimulus, which drew the CBR under $600 million. Ms. Pitney explained that given the tight cash flow arrangement, drawing the CBR below $600 million would require another cash flow solution for the state. She thought that the $563 million was as low as the CBR should drop unless another source of cash flow for the state was discovered. 4:18:43 PM Ms. Pitney discussed Slide 7, "Scenario 3: $40/bbl, POMV impact, Senate Finance Budget $1000/person Dividend, $300M Stimulus," which showed the same table as the previous two slides, but with a $1000 dividend and $300 million in stimulus. This scenario would result in a deficit of $1.2 billion, which would draw the CBR down to $600 million and would require an ad hoc draw from the ERA. The draw could be $276 million at $40/bbl. She pointed out that in the next year, with no dividend and no stimulus, the deficit would be $500 million and because the CBR was drawn down, another ad hoc draw would be required on the ERA. Ms. Pitney explained that for every billion dollars draw out of the ERA, future annual POMV revenue was reduced by $50 million. Future cash flows would be reduced, on top of what was going to happen due to the market and oil price crash. 4:20:32 PM Senator Hoffman asked Ms. Pitney to review the deposits on Line 14. Ms. Pitney explained that the deposits on Line 14 represented oil tax settlements. She relayed that the $235 million was the amount already received in FY20, the additional numbers were estimates based on Department of Revenues forecast. 4:21:30 PM AT EASE 4:23:11 PM RECONVENED Co-Chair Stedman informed the public that the committee would now take up amendments on the operating budget. Co-Chair Stedman MOVED to ADOPT Amendment 1 (copy on file): DEPARTMENT: DCCED APPROPRIATION: AIDEA ALLOCATION: AIDEA RESTORE: $110.3 AIDEA Receipts (code 1102) EXPLANATION: Corrects funding inadvertently removed DEPARTMENT: LAW APPROPRIATION: Civil Division ALLOCATION: Labor and State Affairs DELETE: $400.0 UGF ADD INTENT: It is the intent of the legislature that when making reductions to outside counsel contracts, the department use staff instead of outside contracts whenever possible; and the department should not make reductions to contracts if the contract is a possible revenue generator. Co-Chair Stedman OBJECTED for discussion. PETE ECKLUND, STAFF, SENATOR BERT STEDMAN, spoke to Amendment 1, which he described as a technical clean-up amendment. Co-Chair Stedman WITHDREW his OBJECTION. There being NO further OBJECTION, Amendment 1 was ADOPTED. 4:25:12 PM Co-Chair Stedman MOVED to ADOPT Amendment 2 (copy on file): Agency: Environmental Conservation Project: Village Safe Water and Wastewater Infrastructure Projects Village Safe Water and Wastewater Infrastructure Projects: Expansion, Upgrade. and Replacement of Existing Service Amount: $20.900,000 Federal Receipts (1002) $4.832.000 GF/Match (1003) $200.000 Stat Desig (1108) Village Safe Water and Wastewater Infrastructure Projects: First Time Service Projects Amount: $31,350.000 Federal Receipts (1002) $7.248.000 OF/Match (1003} $300.000 Statutory Designated Program Receipts (1108) Agency: Commerce, Community & Economic Development Project: Alaska Energy Authority - Rural Power Systems Upgrades Amount: $12,500.000 Federal Receipts (1002) $5,000,000 Unrestricted General Funds (1004) APPROPRIATION: National Petroleum Reserve ADD: NATIONAL PETROLEUM RESERVE - ALASKA IMPACT GRANT PROGRAM. The amount received by the National Petroleum Reserve-Alaska special revenue fund (AS 37.05.530(a)) under 42 U.S.C. 6506a(l) or former 42 U.S.C. 6508 by August 31, 2020, estimated to be $13,100,000, is appropriated from that fund to the Department of Commerce, Community, and Economic Development for capital project grants under the National Petroleum Reserve - Alaska impact grant program. EXPLANATION: Fund the NPRA receipts, per the Governor's requested level. Co-Chair Stedman OBJECTED for discussion. Mr. Ecklund explained that Amendment 2 had three components. The first part would add the water and sewer projects across the state. The second part would add funding for rural power system upgrade to DECCED. The third was $13.1 million for the National Petroleum Reserve Alaska Impact Grant Program. Co-Chair Stedman WITHDREW his OBJECTION. 4:26:45 PM Senator Olson stated that there was a name missing from the list of co-sponsors on the amendment. Senator Bishop wanted to be a co-sponsor of the amendment, as well as Senator Wielechowski and Senator Wilson. There being NO further OBJECTION, Amendment 2 was ADOPTED. 4:27:32 PM Co-Chair Stedman MOVED to ADOPT Amendment 3, 31-GH2197\O.4 (Bruce, 3/21/20) (copy on file): Page 74, following line 23: Insert a new subsection to read: "(d) The sum of $680,000,000 is appropriated from the general fund to the dividend fund (AS 43.23.045(a)) for the payment of permanent fund dividends and for administrative and associated costs for the fiscal year ending June 30, 2021." Reletter the following subsection accordingly. Page 97, lines 29 - 30: Delete "secs. 21(a), (b), and (d)" Insert "secs. 2l(a), (b), (d), and (e)" Co-Chair Stedman OBJECTED for discussion. Mr. Ecklund explained that the purpose of the amendment was to pay a $1000 dividend in October. Co-Chair Stedman understood that each qualified Alaskan would receive a $1000 dividend. Co-Chair von Imhof OJBECTED. She believed that paying a large dividend at this point had serious fiscal consequences. She asserted that the focus should be on paying stimulus money and Covid-19 associated money directly to the people who truly needed it for food security, energy assistance, and supplemental UI benefits. Senator Wielechowski thought the amount was woefully inadequate. He said that people have been ordered out of work and he supported the recently passed UI legislation. He lamented that Alaska had the lowest unemployment replacement wage in the country. He argued that the $1000 dollars was far below what was required in statute and was inadequate for the current crisis Alaskan were experiencing. Senator Bishop agreed with Senator Wielechowski's comments - to a point. He was afraid the proposed dividend was the last one Alaskans would receive for a while. He was concerned that future generations would not benefit in the same was as past and current generations. 4:30:34 PM Senator Olson lamented that businesses were losing revenue and families continued to have expenses to pay. He found that the dividend amount was wanting but was a good first step in getting money to Alaskans. Co-Chair Stedman WITHDREW his OBJECTION. Co-Chair von Imhof MAINTAINED her OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Hoffman, Wilson, Olson, Stedman OPPOSED: Bishop, Wielechowski, von Imhof The MOTION PASSED (4/3). There being NO further OBJECTION, Amendment 3 was ADOPTED. 4:32:02 PM AT EASE 4:34:12 PM RECONVENED Co-Chair Stedman stated that there was a conceptual amendment brought to the committee by Senator Wielechowski. Senator Wielechowski MOVED to ADOPT Conceptual Amendment 4: An emergency PFD of $1,000 payable to each individual who is eligible to receive a 2020 Permanent Fund Dividend to be appropriated from the Earnings Reserve Account to the dividend fund payable on June 15, 2020. Co-Chair Stedman OBJECTED for discussion. Co-Chair Stedman summarized that the conceptual amendment was for an additional $1000 dividend from the ERA to be paid out June 15, 2020. Senator Wielechowski offered rationale for the amendment. He explained that the COVID-19 virus had caused an unprecedented unemployment, which was not likely to end soon. The conceptual amendment would provide a payment out of the ERA for every man, woman, and child who was eligible for a 2020 dividend. He was worried for the people in his district, in which there were many low-income people that worked in restaurants, hotels, gyms, and were struggling. He thought the amount of money in the amendment was small considering the magnitude of the crisis. He expressed great concern for the financial hardships and suffering of the people of Alaska. 4:37:55 PM Senator Wilson asked whether the amendment applied to the 2020 application process. Co-Chair Stedman stated in the affirmative. Senator Wielechowski thought the amendment was better to base off the applicants that were due by March 31, 2020. th Giving until June 15 would allow a determination of who was legitimately eligible. 4:38:59 PM Co-Chair von Imhof asked Senator Wielechowski to check whether the governor had extended the application period for a PFD. Senator Wielechowski stated if there had been an extension, he would be happy to amend his amendment. 4:39:41 PM Senator Olson believed that the communities he represented could use the additional funds sooner rather than later. Co-Chair Stedman thought there was clearly a need for relief for citizens across the state. He thought the federal government was targeting May and June for assistance. He considered that the severity of the economic downturn could extend into 2021. He did not believe that the virus and its effects would only last several months. He felt that the severity of the draw to support the amendment was not prudent at this time. Co-Chair Stedman MAINTAINED his OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Wilson, Olson, Wielechowski OPPOSED: Hoffman, Bishop, von Imhof, Stedman The MOTION to adopt Conceptual Amendment 4 FAILED (3/4). 4:43:21 PM AT EASE 4:43:41 PM RECONVENED Co-Chair Stedman checked in with committee members to determine whether anyone needed further explanation of the amendments. Co-Chair von Imhof MOVED to report SCS CSHB 205(FIN) out of Committee with individual recommendations. There being NO OBJECTION, it was so ordered. SCS CSHB 205(FIN) was REPORTED out of committee with two "do pass" recommendations and five "amend" recommendations. Co-Chair Stedman explained that the bill would move next to the Senate Rules Committee and then it would move to the Senate Floor. 4:45:29 PM AT EASE 4:47:45 PM RECONVENED Co-Chair Stedman relayed that there would be a 9:00 am meeting the following morning, but he expected a delay. There was a floor session scheduled for 11:00am. He anticipated the committee would meet at 1 PM. He thanked everyone for coming to work on a Saturday and stressed that the committee was on an expedited schedule to get ahead of the virus and keep people safe.