CS FOR HOUSE BILL NO. 281(FIN) am(brf sup maj fld)(efd fld) "An Act making appropriations for the operating and loan program expenses of state government and for certain programs; capitalizing funds; amending appropriations; and making capital appropriations, supplemental appropriations, and reappropriations." 2:44:51 PM Co-Chair Bishop MOVED to ADOPT proposed committee substitute for CSHB 281(FIN), Work Draft 32-GH2686\K (Marx, 4/28/22). Co-Chair Stedman OBJECTED for discussion. 2:45:13 PM PETE ECKLUND, STAFF, SENATOR BERT STEDMAN, recalled that the committee previously considered Version L of the bill, at which time it considered 29 amendments. The amendments that were adopted had been incorporated into the new CS, Version K. Co-Chair Stedman WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered. 2:46:13 PM Co-Chair Bishop MOVED to ADOPT proposed committee substitute for CSHB 281(FIN), Work Draft 32-GH2686\Y (Marx, 5/3/22). Co-Chair Stedman OBJECTED for discussion. Mr. Ecklund explained that the proposed CS for CSHB 281 (Version Y) simply merged the previously adopted CS from SB 164 (Version O) and the previously adopted CS from CSHB 281 (Version K). The proposed CS was an omnibus appropriation bill that had capital items, supplemental items, and operating items. Senator Wielechowski asked if the proposed CS contained only amendments passed in the committee. Mr. Ecklund answered affirmatively. Co-Chair Stedman WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered. The CS for CSHB 281(FIN) Version Y was ADOPTED. 2:47:50 PM AT EASE 2:49:20 PM RECONVENED Co-Chair Stedman explained that the committee had adopted the omnibus bill and mentioned that copies of the different versions of the bill were available. Additionally, there was a spreadsheet entitled "Handout D" (copy on file) that would show school bond debt reimbursement figures. He relayed that the Legislative Finance Division (LFD) would be posting more fiscal reports on the omnibus bill and other matters to its website. 2:50:17 PM ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION, introduced himself. He showed slide 2, "Outline": ? Volatility and Spring Revenue Forecast ? Updated Fiscal Summary with Senate Finance CS (SFIN budget) ? Operating Budget Growth ? Position Count Growth Mr. Painter addressed slide 3, "Oil Price Forecast Update," which showed a line graph. He cited that the data was pulled from the futures market the previous day. The spring forecast was depicted by the red line and called for $101 per barrel (bbl) price of oil for 2023. The futures market the previous day had shown the price to be about $99/bbl, while the oil price for FY 22 was running about $2 under the forecast. He summarized that the fiscal summary was close to the spring forecast, but currently the futures were slightly below. He commented on the price volatility throughout the year. 2:51:33 PM AT EASE 2:51:51 PM RECONVENED Mr. Painter advanced to slide 4, "Oil Prices, FY 22 to Date," which showed a line graph entitled 'ANS West Coast Price.' He noted that the brackets on the graph indicated that the Department of Revenue had done the spring forecast on the period based on the futures in that week. Since that time, prices had been extremely volatile, dipping down as low as $100/bbl and up to $120/bbl. He asked members to keep in mind that the level of volatility during the year had been high. Mr. Painter addressed slide 5, "FY Oil Price Sensitivity Chart," which showed a graph entitled 'FY23 UGF Revenue by ANS Price (Excluding POMV).' He summarized that as prices increased, revenue increased. The spring forecast showed $101/bbl oil, which was down to about $99/bbl, which signified a reduction in revenue of about $190 million. He explained that there were "stair-steps" in DOR's forecast. He noted that the line was not a fixed curve. He noted that when the state was trying to balance the budget while relying on high oil prices rather than savings accounts, LFD had historically recommended that the legislature use a sensitivity chart to give a better idea of where the state would be if prices did not meet the forecast expectation. He encouraged members to consider a wider span of the line than just looking specifically at $101/bbl oil. 2:54:07 PM Mr. Painter spoke to slide 6, "Fiscal Summary: Senate Finance Budget, Spring Forecast (UGF only)," which showed a data table. He highlighted that the top showed revenue, projected to be just shy of $7 billion of Unrestricted General Fund (UGF) revenue in FY 22, and about $8.3 billion in FY 23. He pointed out appropriations on line 6, with the operating budget in FY 22 (including supplementals) at $4.9 billion and a bit over $5 billion in FY 23. He pointed out agency operations shown on line 8 increasing year to year by $263.9 million. Mr. Painter noted that there was a placeholder for the K-12 disparity test. There was still an ongoing concern that the state might fail the K-12 disparity test, with an ongoing appeal with the federal Department of Education. If the state failed the test, it would add $72.4 million to the state's UGF expenditures in FY 22 and $74.6 million in FY 23. He included the amount in the fiscal summary on line 9. Mr. Painter continued to address the fiscal summary table on slide 6. He highlighted that line 10 showed statewide items, with an increase of $349 million from FY 22 to FY 23, primarily caused from oil and gas tax credits. There was $54 million paid out in the FY 22 budget, and $349 million in the current budget. The other major increase was a deposit to the retirement funds to make up for the zero funding of healthcare by the Alaska Retirement Management (ARM) Board. He noted that he would discuss the item more later in the presentation. Mr. Painter summarized that there was a bit over $500 million of operating supplementals in the budget, the largest of which referred to school bond debt reimbursements that paid back past amounts unpaid in previous years. Similarly, the funds would go towards paying unpaid amounts for Regional Educational Attendance Area (REAA) Fund and Community Assistance, and oil and gas tax credits. He summarized that the primary supplemental items made up for past years. Three were other increases relating to fire suppression and the Disaster Relief Fund. Line 12 showed the capital budget, which was split. The previous year there had been $242.9 million in capital appropriations. The current capital budget was split with $324.6 million in FY 22, and $407.4 million in FY 23. He summarized that up for consideration was a capital budget of about $730 million of UGF across the two fiscal years. 2:57:50 PM Mr. Painter pointed out that line 16 showed the Permanent Fund Dividend. He recounted that the previous fall there was an approximately $1,100 PFD paid out, and the current budget included a dividend of 50 percent of the percent of market value (POMV) draw, which was estimated to be between $2,500 and $2,600 per person. Line 18 showed that the budget included $199 million to deposit past unpaid royalties into the corpus of the Permanent Fund to make up for amounts that were not paid in FY 17 and FY 18. There was a pre-transfer surplus in FY 22 of about $550 million and about $1.2 billion in FY 23. Mr. Painter pointed out that forward funding for K-12 education was moved down to the fund transfers on line 23, in order to be consistent with how LFD treated forward- funding of K-12 in the previous period when it was forward- funded. He explained that when the state did not forward fund, the Public Education Fund behaved like a fund capitalization and would be in a different part of the fiscal summary. He thought the method made for a cleaner fiscal summary than prior versions, because the forward funding was a form of savings. Mr. Painter highlighted the bottom line of the fiscal summary, which showed a post-transfer surplus of $832 million in FY 22. The line above showed $660 million being deposited into the Statutory Budget Reserve (SBR), and the combined amounts would result in just shy of $1.5 billion expected to go into the SBR in FY 22. In FY 23, there was a post-transfer surplus of $87.4 million that would similarly go in the SBR. In FY 23, the budget-balancing oil price was about $99/bbl. If the oil price was above $99/bbl, the surplus would go into the Permanent Fund as shown on line 22. He qualified that the K-12 forward funding amount would prorate downward if the revenue was not available. The budget balancing oil price without forward funding dropped down to $84/bbl. 3:00:54 PM Mr. Painter spoke to slide 7, "Fiscal Summary: Senate Finance Budget, $84 Oil (UGF only)," which showed a data table. He highlighted changes in the case of $84/bbl oil, including statewide items on line 10. The oil and gas tax credit amount would decrease, as it was a formula based on oil revenue. He highlighted that the deposit to the Permanent Fund shown on line 22 would not happen, and at $84/bbl oil there would be $36 million extra put into forward funding. Co-Chair Stedman asked if Mr. Painter could discuss backstop or backfill language from the SBR. Mr. Painter explained that many times there would be language in the budget in the case of a deficit that allowed for the difference to be drawn from the Constitutional Budget Reserve (CBR) or SBR. He believed the language was in the budget for the SBR, but the mechanism would only kick in after the $84/bbl amount. Co-Chair Stedman asked Mr. Painter to get back to the committee with information regarding the oil price threshold that included evaporation of the forward-funding and the SBR. Mr. Painter agreed to address the topic. Co-Chair Stedman explained that there were several issues with increases in the FY 23 budget that would not be recurring. He asked for Mr. Painter to get back to the committee with what FY 24 recurring costs would look like. He asked Mr. Painter to consider the governor's submitted budget and wanted to look at the base rate of change for FY 24 in percentages. Mr. Painter agreed to provide the information. Mr. Painter referenced slide 8, "Major Increases in FY23 Governor's Budget from FY22": ? $45.0 million for Medicaid ? $33.6 million UGF increases to offset DGF lost in CBR sweep ? $25.5 million UGF for union contracts, health insurance, and other contractual items ? $17.4 million combined increases in Department of Public Safety (adding troopers, VPSOs, and support positions) ? $12.9 million combined increases in Department of Corrections (booking and MH unit at Hiland Mountain, adding non-CO support positions) ? $5.7 million for DEC to take primacy of federal permitting programs ? $4.0 million for Department of Law for statehood defense ? $3.8 million for fire suppression preparedness Mr. Painter explained that the next few slides covered major increases in the current budget compared to the previous fiscal year. The governor's budget called for several major increases (listed on the slide), and the following few slides would show increases in the Senate budget that were not in the governor's original budget. He reviewed the increases on the slide. 3:06:30 PM Mr. Painter highlighted slide 9, "Many FY23 Increases Reverse Past Budget Reductions": ? Several increments in the Governor's FY23 budget request reverse reductions or vetoes made since FY23: $45.0 million Medicaid increase Medicaid was reduced by $35.0 million in FY22. $4.0 million University of Alaska increase UA was reduced by $54.3 million from FY20-22. $2.0 million for Legislative per diem vetoed by Governor in FY22. $0.7 million GF/MH items vetoed by the Governor in FY22. ? Several other items reverse reductions made from FY15-FY19 under previous governors: $4.9 million for DEC 404 Primacy this was cut in FY15. $3.8 million for wildfire prevention and academy this was cut in FY16. $2.4 million for Village Public Safety Officers this was cut in FY16. $1.2 million for Judiciary for increased hours this was cut in FY16. Mr. Painter noted that many of the increases on the previous slide were reversing past budget reductions from the previous seven or eight years. He commented that many of the items were bringing the state back to levels of service provided before revenue decline starting in FY 15. Co-Chair Bishop commented that the $4 million increase to the University of Alaska was in light of a $101 million reduction since FY 16 to date. Senator Olson went back to slide 8 and referenced the Department of Environmental Conservation primacy federal permitting. He thought the funds had been cut. Mr. Painter answered affirmatively. He shared that the item was not in the Senate version of the budget, but was an increase requested by the governor. Mr. Painter showed slide 10, "Major Increases in SFIN Agency": Operations from Governor Proposal ? $60.0 million K-12 Outside BSA Formula ? $59.4 million for AMHS (Governor eliminated UGF) ? $27.0 million for fuel trigger to offset high oil prices ? $16.1 million DOH to Increase Personal Care Attendant Wages ? $14.1 million for University of Alaska ? $5.0 million for ASMI ? $4.3 million for Food Bank pilot program ? $4.3 million for 50% increase to K-12 residential schools Mr. Painter explained that both the House and Senate versions of the budget had an amount of UGF for the Alaska Marine Highway System (AMHS) that was equal to the amount of funding the previous year. It was not an increase but showed as one if compared to the governor's proposed budget. He discussed the fuel trigger to offset high oil prices for agencies and particularly the AMHS. He mentioned that the increase to residential schools did not include Mt. Edgecumbe High School. 3:11:39 PM Co-Chair Stedman referenced the AMHS and thought the funds were put in if the ferries ran the schedule and there were high oil prices. He did not think there would be crew to run the AMHS schedule. He mentioned backfill language for federal funds and expected a lot of the funds would not be spent. Senator Olson asked if Co-Chair Stedman was referencing the $60 million going to the AMHS listed on the slide. Co-Chair Stedman answered affirmatively. He noted that there would be $200 million in federal funds coming to AMHS. He unsure of the timing of when the funds would be available. He thought there would be a more refined number during the following year's budget process. Mr. Painter spoke to slide 11, "Major Increases in SFIN Statewide Items from Governor Proposal": ? $89.3 million for PERS/TRS pension fund (amount that would have gone to healthcare fund but for ARM Board decision to leave it unfunded) ? $1.2 billion for K-12 forward funding (more of a savings item than an expenditure) ? $199.0 million to PF corpus in FY22 to satisfy audit finding relating to FY17-18 royalties ? $220.8 million in FY22 to pay past unfunded School Bond Debt Reimbursement from FY17-21 ? $84.0 million in FY22 to repay past unfunded REAA deposits from FY17-21 ? $60.0 million in FY22 to pay oil tax credits at statutory amount ? $38.9 million in FY22 to bring Community Assistance distributions to $30 million in FY22 and FY23 3:15:04 PM Mr. Painter addressed slide 12, "What's the True Operating Budget Growth Rate?" ? Several changes from FY22-23 give the FY23 agency operations budget a lower starting point than FY22. ? The Governor's FY23 budget increases agency operations by $95.6 million (2.5%) over the FY23 baseline. ? However, the Governor's budget uses temporary federal funds in place of UGF for the Alaska Marine Highway System. Keeping UGF funding level (as the House and SFIN budgets do) would result in a $155.0 million (4.0%) over the baseline. ? SFIN Operating Budget is $319.7 million (8.3%) over the baseline. The House is $266.9 million (6.9%) over the baseline, although $10.3 million of salary adjustments were submitted after the House's process was complete. Mr. Painter noted that the fiscal summary had shown that agency operations were up by 6.7 percent, which could be understating the true level of budget growth due to built- in decreases before the budget work was started. The decreases were listed in a small table on the right side of the slide. He mentioned changes in retirement funds, the decrease in student count, the removal of one-time items, and contractual changes. The baseline before starting budget work was $55.5 million below the previous year's level with no change in service levels. He summarized that doing a comparison using the baseline rather than to FY 22, it would provide a clearer picture of growth. Mr. Painter explained that the House budget had a growth rate of 6.9 percent above the baseline, while the Senate Finance Committee budget had an 8.3 percent growth rate above the baseline. He noted that there had been some governor's amendments that may have increased the budget and exaggerated the difference between the two. He commented that the proposed budget was a significant growth rate after years of flat or declining budget, but the Senate Finance budget was a bit over $300 million beyond the baseline. 3:18:01 PM Co-Chair Stedman discussed the timing process after the governor's budget was submitted on December 15 and noted that there were quite a few amendments and adjustments after the House had done its work, and the budget cycle stayed open until the very last requested changes from the governor. He noted that the Senate did not have the same time frame as the House and dealt with the end of the budgetary cycle. Mr. Painter showed slide 13, "Full-Time Position Count Comparison," which showed a table of the position count in different versions of the budget. He noted that the governor's budget had proposed to increase the statewide position count by 260 from the previous year, while the Senate Finance budget was 43 positions below the governor's request. There was still a substantial increase of 217 positions higher than FY 22. Senator Hoffman asked about Conference Committee. Co-Chair Stedman explained that the following major step after floor action on the bill would be working out the budget with the other body. Co-Chair Bishop MOVED to report SCS CSHB 281(FIN) out of Committee with individual recommendations. There being NO OBJECTION, it was so ordered. SCS CSHB 281(FIN) was REPORTED out of committee with two "do pass" recommendations and with four "amend" recommendations. Co-Chair Bishop MOVED that the Senate Finance Committee direct the Divisions of Legislative Finance and Legislative Legal make technical and conforming changes to the bill as necessary. There being NO OBJECTION, it was so ordered.