SENATE BILL NO. 49 "An Act making appropriations for the operating and loan program expenses of state government and for certain programs; capitalizing funds; amending appropriations; making reappropriations; 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." SENATE BILL NO. 51 "An Act making appropriations for the operating and capital expenses of the state's integrated comprehensive mental health program; making supplemental appropriations; and providing for an effective date." 1:05:21 PM Co-Chair Stedman discussed the afternoon portion of the agenda. The committee would consider adoption of a committee substitute (CS) for SB 49 and SB 51 and would hear a fiscal update from LFD. He explained that the committee had been working on a base budget with fund source exchanges, COVID-19 relief funds, and transfers from other fiscal years excluded. The committee would consider the base budget with recurring revenues and recurring expenditures. The CS would include all subcommittee work, and he would look to members for amendments and other concerns to be submitted to his office by Friday. Senator Hoffman MOVED to ADOPT proposed committee substitute for SB 49, Work Draft 32-GS1509\N (Marx, 5/4/21). Co-Chair Stedman OBJECTED for discussion. 1:07:27 PM PETE ECKLUND, STAFF, SENATOR BERT STEDMAN, spoke to the proposed CS. He discussed the structure of the bill, which had been divided into sections and groupings for purposes clarity. There was multiple numbers sections. He detailed that Section 1 through Section 3 were the regular operating budget, which contained the recommendations from all the Senate Finance budget subcommittees. Section 2 and Section 3 were all the funding source roll-ups of all the appropriations made in Section 1. He continued that Section 4 through Section 6 were the number sections operating and supplemental items, and Section 5 and Section 6 were the funding source roll-ups for all the supplemental operating items listed in Section 4. Mr. Ecklund added that Section 7 through Section 9 was the numbers section for capital supplemental items. Sections 8 and 9 were the funding source 'roll ups' of all of the supplemental capital items listed in section 7. Mr. Ecklund read from a prepared statement: The Language Section The bulk of supplemental language items have been grouped together at the beginning of the language section. These varying supplemental language appropriations could be for either operating or capital items, as well as direct or 'inflexible' ARPA, CRRSAA, CARES or from other federal acts that require appropriation to be accepted. Sections 10 27 of the language section are the bulk of those varying language supplemental items for FY21 I just referred to The remaining sections (28-59) are mainly more 'normal' or 'usual' FY22 language appropriations 1:09:45 PM Mr. Ecklund continued his remarks about the proposed CS for SB 49. He addressed the substance of the bill. He noted that there were many reports that described the funding laid out in the CS in varying degrees of detail. He noted that there would be even more detailed reports posted on LFD's website after the hearing. Mr. Ecklund highlighted that one change incorporated in the CS was the many transactions approved to accommodate the Governor's request to consolidate human resources and procurement into the Department of Administration. He highlighted that it was the reason that members might notice small differences between their subcommittee recommendation and what was contained in the draft CS. Mr. Ecklund gave a high-level overview of the dollars and fund sources appropriated in the bill. He affirmed that he would list all of the reports in front of members and may reference them but did not intend for members to look at the reports each time. He noted he would use round numbers for clarity. Mr. Ecklund addressed the budget totals: Totals FY22 Operating totals All Funds 10.78 billion UGF 4.56 billion General funds 5.42 billion FY21 Operating supplemental totals All funds 1.27 billion UGF 77.2 million General funds 76.1 million (neg DGF sup of just over 1 M) FY21 Capital supplemental totals All funds 168.7 million UGF 10.2 million General funds 30.8 million Mr. Ecklund noted that there was a typo on member's sheets and that the capital supplemental total should be for FY 21 rather than FY 22. Mr. Ecklund addressed a packet of reports with a cover sheet entitled "CS1 Reports Master Sheet" (copy on file). The reports went into detail listing the fund sources and dollars in the CS. He noted that there were three spreadsheets in the packet, which OMB had presented the previous Friday. The spreadsheets covered operating and capital governor supplemental requests as well as federal direct or 'inflexible' grant funds. He noted that there was an added a Senate column that denoted whether a request had been included in the CS. Further, there was a column labeled 'lang', which stood for 'language'. He clarified that a 'Y' in that column denoted that an item, if included, could be found in the language section; while an 'N' in the column instructed that if that item was included, it could be found in the supplemental numbers section. 1:13:46 PM Mr. Ecklund highlighted language items of note in the bill: Sec 14 (f) the Administration requested extension of an 'estimated to be $9 million federal' appropriation related to CARES act funding from last year, we are partially granting that request. There is approximately $331 million of Coronavirus Relief Funds (CRF) associated with the estimated to be appropriation that we are not rolling forward to next fiscal year Sec 20 amends the current year 'Federal and Other Program Receipts' or RPL language, to restrict designated program and federal receipt authority from being added to the Alaska Gasline Development Corporation and for natural gas pipeline expenditures. It also restricts the RPL process from being used for the 'flexible' CRRSAA DOTPF funds and the flexible ARPA funds. This section further restricts the RPL process from being used for any future funds appropriated by the 117th Congress for infrastructure, jobs, or as part of the American Jobs Plan and federal funds related to economic recovery. Sec 21 (a) supplemental fund cap of $21,315,700 of UGF to the Community Assistance Fund to bring the balance of the fund to $90 million dollars so the FY22 payout to communities will be $30 million (b) $30 million UGF to the Disaster Relief Fund, the Administration had asked for a re-appropriation for this, we are using UGF (c) $6.7 million re-appropriation of FY21 FAA match that is no needed for match, to the Alaska Marine Highway fund to bring the AMHS fund balance up to zero at the end of FY21 Sec 27 NPRA Impact Grant Program, updated the FY21 estimate available and listed out the projects that are to receive funding in FY21 Sec 31 Updated the Alaska Industrial and Development and Export Authorities (AIDEA) dividend to the correct amount, $17,305,000 Sec 32 (e) $2 billion transfer from the Permanent Fund Earnings Reserve to the Corpus: leaving 9 billion 652 million of spendable realized earnings in the ERA on June 30th (based on March 31st statement) Sec 35 Carry forward language allowing FY21 federal funds from man-day billings to be carried forward into FY22 for the Anchorage Correctional Complex Sec 37 Deleted: former section 13 (e), the request to carry forward $35 million of Medicaid lapse for FY22 expenses Sec 38 Deleted: former section 14 (f) open ended federal authority to the Dept of Labor for employment and training services Sec 40 Deleted: former section 16 (e) re- appropriation request of $5 million in lapsing fire suppression funds to DNR for fire break activities will be addressed in the capital budget. 1:18:13 PM Mr. Ecklund continued to highlight notable language items: Sec 41 (b-j) this is the 18-month Marine Highway Funding plan. The total AMHS budget for one year is proposed to be the same level the Legislature passed last year, $123.5 million. The proposal uses a mix of CRRSAA FTA and FHWA federal funds (53,093,700), UGF ($66 million) and other funds ($4.4 million) to support Marine Highway operations for the next calendar year. This one-time 18-month plan uses one- time federal funds to move the funding of the System onto a calendar year basis. Moving to calendar year funding will allow managers to get the ferry schedule out to the public in July or August for the following calendar year. Having a reliable schedule out in advance has shown to increase system revenues by over $5 million dollars. Sec 41 (k) $10,525,400 dollars of federal CRRSAA and ARPA FTA funds for Coordinated Transportation Grants Sec 41 (l) $6 million of federal CRRSAA grants to the Inter-Island Ferry Authority to replace their depleted reserves and allow them to continue operation Sec 44 debt and other obligations Deleted the former section 20, relating to allowing the Department of Revenue to issue Revenue Anticipation Notes Sec 44 (L) full funding for school bond debt reimbursement $83,543,960 $52,744,460 UGF $30,799,500 School Fund Sec 45 (c) Same RPL restrictions as FY21, but for FY22 Sec 46 (g) $12,394,800 in FY22 from the PCE formula payment to the Community Assistance Fund Sec 46 (h) $17,605,200 in FY22 from the general fund to the community assistance fund to bring the FY22 balance of the C.A. Fund to $90 million so there can be a $30 million dollar payout to communities in FY23. Sec 46 (k) $34,238,00 from the general fund to the Regional Educational Attendance Area (REAA) Fund (full funding) Deleted: former section 22 (u) $50 million in program receipt authority for AGDC for deposit into the Alaska liquefied natural gas project fund Deleted: former section 22 (v) open ended federal receipt authority for AGDC Sec 46 (u) Oil and gas tax credits: not to exceed $114 million from the general fund. Sec 46 (v) $100 thousand from general fund program receipts collected by DMV to the abandoned motor vehicle fund for removing abandoned vehicles from highways. Sec 47 (L) Fund transfers: authorizes repayment of WWAMI loans to the Alaska Commission on Postsecondary Education to be deposited into the Higher Education Fund, $504,044 Sec 47 (m) change the estimate to a zero balance of the large passenger vessel gaming tax account deposit into the general fund. Sec 52 (a) Statutory Budget Reserve: The unencumbered balance of the Unrestricted General Fund available for lapse on June 30, 2021 are appropriated to the SBR (estimated to be $100 million) Sec 52 (b) the sum of $325 million is appropriated from the general fund to the SBR (an FY21 appropriation) Deleted the Constitutional Budget Reserve sections Effective Dates: Made supplementals effective April 15th for agency supplemental funding needs and June 30th, for lapse and reappropriation provisions 1:23:43 PM Senator Wielechowski asked about Section 31 and the Alaska Industrial Development and Export Authority (AIDEA) dividend, which referred to the "correct amount." He asked if there was a statutory formula for the dividend. Mr. Ecklund affirmed that there was a statutory formula for the AIDEA dividend. Senator Wielechowski asked if the formula was for a range or a set number. Mr. Ecklund could not recall the formula but thought the amount would approximate half of the earnings. Co-Chair Stedman thought the committee could ask the question of LFD. Senator Hoffman thought the general public should be aware that although the Permanent Fund Dividend (PFD) was not addressed in the CS, it was the intent of the Senate to fund a PFD. He asked if his assumption was correct. Co-Chair Stedman affirmed that Senator Hoffman was correct. He stated that the topic of the PFD had yet to be taken up by the committee. The committee's intent was to work on the topic over the following two weeks. he informed that the proposed $2 billion transfer from the corpus was a placeholder. The committee would discuss and further review the Earnings Reserve Account (ERA) with input from all members as to whether to increase or decrease the amount. He recalled that the previous legislature had put $4.9 billion in as a transfer. 1:26:14 PM Senator Olson asked how $2 billion was decided upon as a placeholder. Co-Chair Stedman relayed that he had grabbed the number as a starting point after consideration of inflation-proofing numbers. He stated that a data sheet would be available to the members when the topic was up for consideration. He thought it would be nice if members had time to consider the issue. Senator Olson asked about Section 41, and the AMHS moving to an 18-month funding plan. He wondered why the department would not go to a six-month funding plan. Co-Chair Stedman explained that the bill proposed to add six months of one-time funding to the AMHS appropriation, and later adjustments could be made with COVID-19 relief funds. The following year would return to a 12-month cycle with 6 months of lead time. Senator Wilson asked about the proposed deletion of the CBR section and asked if there would need to be a three- quarters vote to enact the proposed budget. Co-Chair Stedman stated there was currently no need for the three-quarters vote, but as the budget process continued the provision would have to be put back in. Senator Wielechowski asked about Section 44 (l), which proposed full funding for school bond deb reimbursement. He asked if the funding was typical and normally drew from the School Fund. Mr. Ecklund answered in the affirmative, and that the number used in the CS was the amount available that was unspent in other parts of the budget. Senator Hoffman asked about Section 46(u) pertaining to oil and gas tax credits. He knew that the item had been discussed by the committee as well as both bodies. He noted that the language for funding the credits used the word "may," which had been pointed out many times by Senator Wielechowski; while the language for funding the PFD used the word "shall." He felt a little uncomfortable in funding the credits without knowing what the support was for different level of funding. Co-Chair Stedman thought the original submission was for $60 million and there had been an amendment from the administration that had been added. He thought the item was open for discussion by the committee. Senator Hoffman asked about discretionary capital funds. Co-Chair Stedman noted that the committee was considering the operating budget. 1:31:50 PM AT EASE 1:31:55 PM RECONVENED Senator von Imhof asked about Section 52(a) relating to the Statutory Budget Reserve (SBR) Fund, and the sum of $325 million. She asked for explanation of the section. Co-Chair Stedman noted that the issue might warrant discussion or changes by the committee. He explained that that at the end of the fiscal year, the excess revenue in the General Fund was swept into the CBR. The action would "front-run" the balance available to sweep to the CBR (which took a three-quarter vote to access) and put it in the SBR, which only took a majority vote to access. He considered that the action would make the funds more accessible, while the funding amounts in the state's accounts would be the same. He anticipated the committee would discuss the matter and had the option of making changes. He noted that LFD would discuss projected account balances shortly. Senator Hoffman referenced Section 32(e), which addressed the transfer of $2 billion from the ERA to the corpus of the Permanent Fund. He asked how the proposal was brought forward to be included in the budget. Co-Chair Stedman thought the state needed to make sure it was inflation-proofing the Permanent Fund, and even though there was a substantial appropriation the previous year, the proposed appropriation would be an additional amount into the constitutionally protected portion of the fund. He reiterated that the amount was just a starting point for the committee to consider. He acknowledged that the committee may consider not doing the appropriation at all, or changing the amount. He thought the committee needed to consider a presentation on the Permanent Fund, including the corpus and the ERA. He reminded that the PFD came out of the ERA. He estimated that there was about $10 billion unencumbered in the ERA, and perhaps $17 billion including encumbered funds. 1:36:47 PM Co-Chair Stedman WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered. The CS for SB 49 was ADOPTED. Co-Chair Stedman encouraged members to contact his office with concerns or proposed amendments by midday Friday, and work with committee aides to resolve issues. Senator Wilson MOVED to ADOPT proposed committee substitute for SB 51, Work Draft 32-GS1508\G (Marx, 5/4/21). Co-Chair Stedman OBJECTED for discussion. Mr. Ecklund explained that the dollars appropriated in the mental health bill were accounted for in the operating budget reports. He noted that the other body would remove the capital projects listed in the bill, and the Senate would do the opposite, so all items were coferenceable. He highlighted that there were six proposed capital projects in the mental health budget bill, and the other body removed five of the projects. The Senate proposed to fund deferred maintenance and accessibility improvements for $500,000. Co-Chair Stedman WITHDREW his OBJECTION. There being NO OBJECTION, it was so ordered. 1:40:18 PM ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION, addressed an earlier question by Senator Wielechowski about the AIDEA dividend. He specified that the AIDEA dividend could be anywhere between 25 percent and 50 percent of net income, and the proposed $17.3 million represented the full 50 percent. Mr. Painter discussed a presentation entitled "Fiscal Update with Senate Committee Substitute" (copy on file). Mr. Painter turned to slide 2, "Fiscal Summary Based on Senate Committee Substitute," which showed a table of a fiscal summary of SB 49. He detailed that the table went back to FY 20 and showed the final budget and supplementals for that year. The information for FY 21 included the enacted budget and the supplementals included in the bill. Information for FY 22 only included the appropriations listed in the bill. The numbers for supplementals referenced by Mr. Ecklund were on line 9 and line 12, which resulted in a total deficit for FY 21 of just over $600 million. He explained that if the operating appropriations in the bill for FY 22 on line 6 were the only appropriations, there would be a $172.4 million pre- transfer surplus. After transfers there would be a surplus of $157.8 million. Co-Chair Stedman asked if there was an expectation that the capital budget would go against the $157.8 million. Mr. Painter explained that the next slide showed more information. 1:42:31 PM Mr. Painter spoke to slide 3, "Fiscal Summary with Capital Budget Placeholder," which showed a table using the governor's amended capital budget of $62.2 million and added UGF in place of the AHFC bonds. He relayed that the bonds were in a bill that had not advanced very far in the legislative process and were not relied upon for the calculations. Adding the two amounts together would result in a capital budget of $166.2 million of UGF, which was highlighted in red on line 10. He summarized that there would be a post-transfer deficit of $8.4 million with using the placeholder, and the amount could end up higher or lower. He noted that the numerics did not reflect the PFD. Co-Chair Stedman asked if Mr. Painter was indicating that the state's recurring revenue equaled its recurring expenses if the legislature paid all the oil tax credits and did not pay a PFD. Mr. Painter answered in the affirmative. Co-Chair Stedman reminded that there was an estimation for the price of oil. Mr. Painter agreed. He thought as oil prices went up and down, the state could end up with a surplus or deficit, and it was difficult to project. Mr. Painter discussed slide 4, Use of Lapsing Funds in Senate CS": ?According to OMB, $100.7 million of FY21 UGF appropriations are expected to lapse: $90.0 million in Medicaid (reduction from previous $100.0 million $4 million in Department of Corrections $5.7 million in Department of Education $1.0 million in other agencies Senate CS directs this to the Statutory Budget Reserve ?$75 million CBR direct appropriation for COVID 19 relief is also set to lapse to CBR as CARES Act made it unnecessary Governor requested reappropriating $30 million of this to the Disaster Relief Fund and carrying forward the remaining $45 million to FY22 this would require a ? vote of the legislature Senate CS allows full amount to lapse to the Constitutional Budget Reserve Direct appropriations from the CBR in FY21 coupled with increased oil prices leads to post transfer surplus in FY21 estimated to be $367.5 million after supplemental appropriations Senate CS includes $325.0 million appropriation from general fund to SBR in FY21, essentially redirecting this money from the CBR to the SBR" Mr. Painter noted that in the CS for SB 49, the $100.7 million was directed towards the SBR. In the governor's budget, $35 million of the amount was reappropriated for FY 22, and in the other body the budget reflected about $87 million of Medicaid lapsing funds were directed towards the FY 22 budget as well. 1:46:55 PM Mr. Painter continued to address slide 4. He recalled that the previous year the legislature had funded about one quarter (about $980 million) of the budget directly from the CBR. There was a balanced budget after the transfer, however higher revenue led to a projected $367.5 million post-transfer surplus for FY 21. He explained that the CS redirected $325 million of the surplus to the SBR. Instead of the funds entirely lapsing back to the CBR, a portion would go to the SBR. Senator Wilson wondered why it was necessary to have a three-quarters vote for an appropriation from the CBR, but not necessary to divert the funds to the SBR. Mr. Painter explained that because the funds were not being appropriated from the CBR, the three-quarters vote was not needed. However, at the end of the year the sweep provision would capture the funds because the SBR was a "sweepable" account. To keep the funds out of the CBR would require a reverse-sweep three-quarters vote on July 1. Co-Chair Stedman thought the reverse sweep could occur on August 1 or September 1, whenever the legislature got to doing a reverse sweep. Mr. Painter referenced slide 5, "Projected Reserve Balances in Senate Committee Substitute with Capital Budget Placeholder," which showed a table entitled 'CBR Balance' and a table entitled 'SBR Balance.' The starting balance of the CBR available for appropriation was projected to be about $1.4 billion for FY 21. He highlighted that about $980 of direct appropriations that came out of the CBR, while the $75 million from the COVID-19 appropriation and the post-transfer surplus went back in, and the SBR transfer came out. All the transactions roughly netted an ending balance of $615 million. Based on the placeholder capital budget, in FY 22 there would be some deposits and earnings, a small post-transfer deficit, and an ending balance of $657 million. Mr. Painter addressed the SBR balance table shown on slide 5. He identified that the SBR would receive the $325 million appropriation, then the $1.7 million of lapsing appropriations for an ending balance of $425.7 million and a combined $1 billion in reserves. Without the SBR appropriations, the CBR balance at the end of FY 21 would be approximately $1 billion based on the CS. 1:51:06 PM Co-Chair Stedman thought the committee would need the assistance of LFD and perhaps the Alaska Permanent Fund Corporation (APFC) to get an estimate and breakdown of the ERA. He also thought assistance in understanding the amount of the statutory dividend for FY 22. He wanted LFD to return and present a wholistic picture for members to consider. He referenced Senator Hoffman's earlier question about the inter-tangling of appropriations and political relationships. He thought it would be nice for LFD to present some history of contributions into the corpus of the Permanent Fund in order to understand the effects of contributions. Co-Chair Stedman asked the members to communicate with his office regarding any data requests for LFD. Co-Chair Stedman asked for Mr. Painter to look at a hypothetical oil price of $70/bbl for FY 22. He considered state revenues if oil prices were strong. SB 49 was HEARD and HELD in committee for further consideration. SB 51 was HEARD and HELD in committee for further consideration. Co-Chair Stedman discussed the agenda for the following day.