HOUSE BILL NO. 169 am "An Act making appropriations for public education and transportation of students; and providing for an effective date." 9:18:07 AM Co-Chair Stedman asked the sponsor to address the committee. 9:18:34 AM REPRESENTATIVE DAN ORTIZ, SPONSOR, explained that HB 169 was an appropriation bill for the foundation formula and pupil transportation for 2022 and 2023. The bill was a separate appropriation bill from the regular operating budget, in order to pass funding for education early in the session for FY 22 and provide forward-funding for FY 23. He referenced the long legislative history of the members, and thought they were familiar with the ongoing problem of delayed funding for school districts. He described the challenge of school districts that often had to send out layoff notices to teachers because of uncertainty with funding levels and the need to comply with contracts. He recalled receiving such a notice early in his own teaching career. Representative Ortiz continued his opening remarks. He asserted that HB 169 reflected an attempt to help alleviate the problem as described. He identified that education and student success was a high priority for the legislature and the state. He asserted that HB 169 reflected the legislature's commitment to education, students, and teachers and would help alleviate one issue related to the growing problem of not being able to retain teachers. Senator Wielechowski thanked the sponsor for bringing the bill forward, which he thought was a huge step forward in the way education was funded. He hoped the state would engage in the method more often. He asked if the sponsor knew when layoff notices were sent to teachers in the state. Representative Ortiz thought that the layoff date varied around the state. He thought some districts began layoffs in the middle of April, and others at a later time depending upon the budget cycle of the district. He understood that the Juneau School District had an earlier layoff date. 9:23:12 AM Co-Chair Stedman asked if the sponsor could recall if the legislature had ever lowered the Base Student Allocation (BSA) amount and asked if the bill contained the targeted BSA amount. Representative Ortiz could not recall the legislature having ever lowered the BSA. He mentioned the constitutional obligation to provide an adequate education for all students in the state, including a financial commitment for the state to bear the responsibility. He considered that since there was no question of having the obligation, the legislature might as well provide the funding earlier. Co-Chair Stedman asked for more detail regarding the timing of the proposed appropriation and where the funds would come from. He asked if there had been litigation over the issue. Representative Ortiz was not aware of any litigation. He thought no one could argue that the bill proposed to tie the hands of a future legislature, as the current body would be the legislature for FY 23. He did not think there would be a threat of a lawsuit going forward. Co-Chair Stedman set the bill aside. He assured the viewing public that there would be further information coming from the committee regarding maintenance of effort and the federal assistance funding coming for schools. He referenced data sheets that were being assembled. He thought there would be dialogue over the following year as to how to track the funds. HB 169 was HEARD and HELD in committee for further consideration. ^PRESENTATION: OMB MAY 3, 2021 AMENDMENTS OP/CAP/SUP 9:27:09 AM NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, addressed four amendment packages differentiated by operating, capital, supplemental operating, and supplemental capital (copy on file). He addressed the FY 22 operating governor amend package, which had a memo followed by a summary spreadsheet with three items. Mr. Steininger addressed Line 1, which was an adjustment to the cost-of-living adjustment (COLA) for court service officers and deputy fire marshals. Upon further review, it was noted that the two percent adjustment for the second year of the contract was applied to an incorrect base salary. The total was $317,000, $300,200 of which was Unrestricted General Funds (UGF). The item accommodated a four percent salary adjustment made in the first year, and a two percent adjustment was made to the base salary. Mr. Steininger addressed Line 2, concerning an upward adjustment to the investment management fees for the Alaska Permanent Fund Corporation (APFC), due to higher returns and a larger than expected account balance. He detailed that management fees were scaled as a percent of assets under management. The $60 million item was an estimate, and if the fees came in lower than $60 million the money would be put back into the fund. 9:29:47 AM Mr. Steininger spoke to Line 3, which was for three temporary positions for the Department of Transportation and Public Facilities (DOT). As the department had been working through the complexities of the guidance and rules surrounding the federal relief from the Federal Aviation Administration (FAA), Federal Transit Authority (FTA), and the Federal Highway Administration (FHWA) in all 3 primary COVID-19 funding acts, there was about 9 pots of money with differing rules that necessitated additional accounting staff. Co-Chair Stedman observed that the item description listed three long-term non-permanent (LTNP) positions. He asked for greater detail. Mr. Steininger explained that in the classification system for state employees there was permanent full-time employees, and non-permanent employees were split into short-term and long-term positions. The short-term non- permanent positions were limited to 90 or 120 days depending upon the bargaining contract. The long-term non- permanent positions were those requiring more than 90 or 120 days. Co-Chair Bishop asked if the department had the position control numbers (PCNs) available, or if a classification study would be needed. He asked if the positions would go away after the funds were expended. Mr. Steininger stated that the proposed amendment would create three new PCNs and were labeled as long-term non- permanent position to ensure that the employees understood the positions would go away once the need and federal funding expired. Senator Wielechowski asked if there were any other collective bargaining agreements that were currently being negotiated that might necessitate a supplemental request. Mr. Steininger answered affirmatively. There were two tentative agreements that he had received that morning, and there would be further amendments related to the bargaining units. He thought there was a third agreement outstanding. He affirmed that OMB would come back before the committee with more information when it was available. Co-Chair Stedman asked if the further amendments would be within the next seven days. Mr. Steininger stated that OMB was working on formal backup in order to transmit the information to the legislature in the next 24 to 48 hours. Senator Wielechowski about Item 2 pertaining to APFC management fees. He asked about the fee rate. Mr. Steininger had to the defer the question back to APFC. He believed the fees varied according to the management entity. Co-Chair Stedman thought the fees would be tied to the asset base. He suggested that as the Permanent Fund advanced in value the fees would go up. 9:33:47 AM Senator Wilson asked about the two forthcoming amendments and the bargaining unit that Mr. Steininger referenced. Mr. Steininger thought the supervisory unit and the Correctional Officers Association would be ready in the next 24 to 48 hours, his office was putting together the technical records so that the Legislative Finance Division (LFD) could put the adjustments in the right components. He recalled that the remaining contract was labor, trades, and crafts. Co-Chair Stedman clarified that the committee had expressed interest in having the OMB formalize amendments so that paperwork was in order and the committee would take action on the amendments were presented. Mr. Steininger addressed a memo and spreadsheet with capital budget amendments (copy on file). He discussed Item 1 on the spreadsheet, relating to FTA. He explained that the item was not related to federal COVID-relief funding but was an adjustment to the normal federal transit administration grant. The increase was due to the FTA apportionment rising over the previous years and communities being able to submit applications through DOT. The increase was for $25.26 million from a base of $10 million and would be a pass-through to community transit organizations. Mr. Steininger discussed Item 2, related to federal COVID- relief funds. A portion of the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) funding through DOT would be passed through to the Anchorage Metropolitan Area Transit Solutions Organization. The act required that the monies be passed through to Anchorage, and the pass-through had been omitted from earlier appropriation vehicles. The funding was in the amount of $11.3 million. Senator Olson considered the proposed DOT funding listed in item 1 and item 2. He asked if any of the funding had to do with the Knik Arm Bridge and Toll Authority (KABATA) project. Mr. Steininger did not believe either of the items would deal with the KABATA issue but would confirm with the department and get back to the committee. 9:37:13 AM Mr. Steininger addressed a spreadsheet with supplemental operating amendments (copy on file). He addressed Item 1, which would be an increase to federal authority for the Mt. Edgecumbe Boarding School to accommodate COVID-19 relief. The item was related to the relief funding managed by the Department of Education and Early Development that got spread to different school districts. For Mt. Edgecumbe to collect the funds it needed federal authority within its budget in the amount of $5.3 million. Mr. Steininger addressed Item 2, which was $410,000 of judgement settlements and claims. He directed attention to the list of judgement settlements and claims against the state. Mr. Steininger spoke to Item 3, which was a reappropriation to the Marine Highway System Fund. He noted that there would be a corresponding decrease in the supplemental capital budget. The item was a reappropriation of the aviation match for FY 21. The aviation match had been waived in FY 21 as part of one of the federal relief packages, and the Marine Highway System Fund was posting a $5.5 million deficit at the close of the current fiscal year. The item utilized the reduced need for match in the aviation program to backfill the need in the Marine Highway System Fund. Mr. Steininger addressed FY 2021 Supplemental Capital Budget Amendments. Item 1 corresponded with the transfer to the Marine Highway System Fund and reflected the reduction in the capital budget for aviation state match of $5.5 million. Item 2 was $11 million from the Coronavirus Aid, Relief, and Economic Security (CARES) Act funding for rural airport deferred maintenance. The item covered deferred maintenance at airports owned by the state. Item 3 was authority for the Alaska International Airport System to use some of its COVID-19 relief to pay down debt service. He explained that the relief funds received by the airport system could be deposited into its International Airport System Fund as general revenue, however in order to use it outside day to day operations an additional appropriation was needed. Mr. Steininger addressed Item 4, another reappropriation of the aviation state match. The $1 million would be reappropriated to an emergency weather event capital project for the department to be able to respond to emergency weather events that required funding above and beyond the amount available in normal maintenance operating budgets. He used the example of extreme freeze events and avalanches, after which the funds could be used without having to come forward with individual supplemental items for every weather event. 9:41:16 AM Senator Wilson asked how much estimated debt service would be paid with the federal COVID-19 relief funds. Mr. Steininger specified that the item proposed to use $30 million in debt service for the Alaska International Airport System. He believed the system had been able to use other federal receipt authority at the close of the previous year to pay down debt service. He agreed to provide more detail at a later time. Senator Wilson asked if there were other departments that would be using federal CARES Act funding to pay down debt service. Co-Chair Stedman asked if Mr. Steininger could provide the information at a later time. Mr. Steininger was not aware of any other departments paying down debt service with federal CARES Act funding. He knew there was a proposal in the other body to use some of the American Rescue Plan Act (ARPA) funding to pay down the state's annual debt service as a replacement for general funds. He agreed to look to see if there were any other areas with debt service not in the main area of the operating budget. Co-Chair Bishop asked about Item 2 pertaining to CARES Act funding and rural airport deferred maintenance. He asked about the inclusion of capital expenses for equipment. Mr. Steininger explained that most of the funding had limitations on purchasing equipment, but the maintenance work was generally eligible. He thought was nuance involved since there was multiple pots of money and multiple sets of rules. He would work with the department to see if there was allowability in one or more pots of money for purchase of equipment. 9:44:34 AM Senator Olson considered aviation funds being reappropriated to the Alaska Marine Highway System (AMHS) and extreme weather events. He asked where the funding was originally allocated. Mr. Steininger explained that in the previous year's capital budget there had been $8.8 million in one appropriation intended for matching the airport improvement program. Part of it was proposed to be reappropriated, and the remaining amount was being reserved for potential costs that were not federally reimbursable. Originally the funds were UGF intended to match the airport improvement program, but the change in FAA rules allowed for the state (in that one year) to not require match for the program, and the need went away. Senator Olson asked if there was any other fund source that could be used. Mr. Steininger asked if Senator Olson referenced the Marine Highway System Fund or weather events. Senator Olson answered "yes." Mr. Steininger informed that the state could use a straightforward UGF appropriation rather than a reappropriation, or other Designated General Fund (DGF) sources that had available balances, however using the reappropriation as proposed was a place where there was not necessarily a competing need. Senator Wielechowski asked if the proposed reappropriations of aviation funds would be a loss for the Airport Improvement Program. Mr. Steininger stated that the match was waived for the Airport Improvement Program and the FAA had provided significant additional amounts of relief that could be applied to airport maintenance improvement needs throughout the state. Through the federal relief funding, the total amount available for airport needs had grown significantly, but there was no longer a need for general fund match. He summarized that the airports were not necessarily harmed by the use of the matching funds as there was other FAA money coming in that could backfill the amount. 9:47:52 AM Senator Olson asked if the funding switch would slow down any projects. Mr. Steininger relayed that the projects funded through the projects funded through the FY 21 Airport Improvement Project would use federal funds that were still available for use. He understood that the change would not slow down any of the projects. Senator Olson considered the $410,000 UGF in judgements, settlements, and claims referenced in Item 2 of the supplemental operating amendments. He wondered about any other judgements, settlements, and claims were present in the regular operating budget. Mr. Steininger offered to provide a full list of the judgements, settlements and claims inclusive of new items. He explained that there were not any in the FY 22 operating budget, and generally the way the state managed judgements and settlements was in a supplemental budget after the item occurred, so the items were primarily always supplemental needs. he offered to provide a full list by case and amount. Senator Olson asked how much the state paid in total, which he thought was more than $410,000. Mr. Steininger did not know the exact number but estimated that the amount was in the several million dollar range. Co-Chair Stedman asked for Mr. Steininger to provide the information to the committee at a later time. Senator Wielechowski requested a list of management fees listed in Item 2 in the operating budget amendments. He thought the amount seemed huge on top of other fees the state was already paying. Mr. Steininger stated he would work with APFC to get the information. He cited that the increase in management fees was a result of market returns increasing the value of the fund. He agreed to provide the information. Co-Chair Stedman relayed that the committee would reconvene at one o'clock in the afternoon to consider proposed committee substitutes for SB 49 and SB 51, and to hear a presentation about recurring revenue and recurring expenditures. The committee would be engaging in budget discussions over the following two weeks, and would build upon the afternoon presentation as different monies and transactions were layered in. The committee was also waiting for the other body to transmit the companion operating budget bill, which he suspected would not be done for several days. He asserted that the Senate would try and advance the process and minimize the number of days it would take to put the final budgets together after receiving the version from the House. He referenced the constitutional deadline on the 19th of May and was unsure if the deadline would be met. 9:53:24 AM RECESSED 1:04:50 PM RECONVENED