SENATE BILL NO. 25 "An Act relating to inactive state accounts and funds; relating to the curriculum improvement and best practices fund; relating to the fuel emergency fund and fuel emergency grants; relating to the special Alaska Historical Commission receipts account; relating to the rural electrification revolving loan fund and loans from the fund; relating to the Southeast energy fund and grants from the fund; and relating to the Exxon Valdez oil spill unincorporated rural community grant fund and grants from the fund." 9:04:01 AM Co-Chair Olson read the short title of the bill. 9:04:20 AM SENATOR JAMES KAUFMAN, SPONSOR, read from the Sponsor Statement (copy on file): SB 25, in its current form, is intended to improve performance by reducing administrative cost and complexity associated with of maintenance and tracking of accounts that are no longer needed but are still open. The state of Alaska at various times creates special accounts to receive and hold money for certain purposes, but over time some of those funds become dormant and are no longer needed. This can include filled funds that are not supporting active programs, empty funds that are not supporting active programs and funds held in trust. Reducing the administrative burden of maintaining unneeded funds is a prime example of the type of incremental continuous improvement that is needed as Alaska faces new fiscal challenges. Alongside this important reduction, SB 25 creates a simple feedback loop which provides decision-makers with the necessary tools to reduce other funds as recommended. To find candidates for this reduction, we performed an initial screening for inactive funds. This led to an analysis of the financial and statutory basis for 39 existing funds. The analysis and deliberative process revealed six funds which are no longer needed for the originally intended purpose and can therefore be closed. Any proceeds can then be forwarded to the Unrestricted General Fund. The specific funds for this action are listed below: AS 41.35.380 Alaska Historical Commission Receipts Account • AS 26.23.400 Fuel Emergency Fund • AS 44.33.115 Exxon Valdez Oil Spill Unincorporated Rural Community Grant Fund • AS 42.45.020 Rural Electrification Revolving Loan Fund • AS 42.45.040 Southeast Energy Fund • AS 14.07.182 Curriculum Improvement and Best Practices Fund 9:07:08 AM MATTHEW HARVEY, STAFF TO SENATOR KAUFMAN, addressed a Sectional Analysis (copy on file): Section 1: Amends AS 24.20.020 to add a requirement for the Legislative Finance Division to conduct a review of inactive state accounts and funds at the beginning of each new legislature and to submit an electronic report including recommendations regarding which inactive state accounts and funds should be repealed. The report distribution list is included in this section. Section 2: Adds a new subsection to AS 37.07.020 stating that the governor may act upon the Legislative Finance Division report in Section 1 of SB 25 by submitting legislation in accordance with the report. Section 3: Repeals the statutory authority for the following funds not supporting current or active programs. • AS 14.07.182 Curriculum Improvement and Best Practices Fund • AS 26.23.400 Fuel Emergency Fund • AS 41.35.380 Alaska Historical Commission Receipts Account • AS 42.45.020 Rural Electrification Revolving Loan Fund • AS 42.45.040 Southeast Energy Fund • AS 44.33.115 Exxon Valdez Oil Spill Unincorporated Rural Community Grant Fund 9:08:37 AM Co-Chair Stedman mentioned the re-establishment of account balances through the reverse sweep, which was common practice in previous years. He pointed out that certain funds listed were holding accounts. He thought that there was sometimes a political endeavor to do an energy enhancement capital investment and the statutorily established energy funds were used to make enhancement equitable throughout the state. He used the example of a new dam or power line extension. He shared concern that the proposed policy could inadvertently put rural Alaska at a disadvantage. Co-Chair Olson shared Co-Chair Stedman's concern and mentioned funds that had been used in the past to provide energy to areas not on the Railbelt. 9:11:01 AM Senator Kaufman relayed that the intent of the bill was to reduce funds that were not needed. He explained that there had been a long list that had been worked through. He highlighted that the initial piece of the bill was to comprise a list of funds for review and then delete accounts that were not needed or no longer required. The impetus for the bill had come from a discussion with the Office of Management and Budget. Co-Chair Olson thought Senator Kaufman was not opposed to adding to or taking away from the funds previously listed. Senator Kaufman answered affirmatively. 9:12:46 AM Senator Wilson asked whether the sponsor knew the amounts sitting in each of the funds and how long the funds had been active. Senator Kaufman stated that of the accounts listed, the Fuel Emergency Fund had $22,523.74. Co-Chair Olson asked about the amounts of other listed funds. 9:13:40 AM Senator Kaufman did not recall the entire list. He said that work had been done to determine the 6 funds listed in Section 3. Co-Chair Olson asked whether there were any of the 6 funds listed that had significant balances. Senator Kaufman replied that the most significant balance had been in the Fuel Emergency Fund. 9:14:17 AM Senator Wilson asked whether there was a certain criterion as to how long the funds were inactive before they were removed. Senator Kaufman relayed that that detail had not been established. He thought it would be difficult to create a useful criterion, the funds would be reviewed to determine whether they were necessary. 9:14:56 AM Senator Kiehl had a question about the bill structure. He thought the bill suggested that the Legislative Finance Division (LFD) make recommendations to the legislature about funds to delete. He noted that LFD did not generally provide opinions to the committee as a rule. He wondered whether there was criterion that LFD should use in their recommendations to the committee. Senator Kaufman said that the funds that had been selected by the assessment had been determined to be obviously unnecessary. He said that there had been a range of reasons. He thought that LFD would be providing observations about the funds and not an opinion. 9:16:43 AM Co-Chair Stedman expressed concern about the potential for inequity and energy projects being concentrated in one area of the state to the detriment of another. He mentioned the Power Cost Equalization fund. He thought that the inability to protect the funds from the sweep would prove problematic in the future. Senator Kaufman reiterated that the list was a result of the assessment, and he would welcome any additions or deletions. He stated that the bill would create a review cycle to delete unnecessary accounts. He described the bill as a bookkeeping and cleanup tool. 9:19:09 AM Co-Chair Hoffman agreed with the concept proposed in the bill. He addressed the Fuel Emergency Fund, which he considered to be a "tool in the toolbox," that may not be utilized for several years but would still be important to fund emergencies in rural communities. He echoed the concerns expressed by Co-Chair Stedman and Co-Chair Olson. Senator Kaufman relayed that the bill had started with a long list, and after review had been paired down to 6 funds. He suggested that any amendments that came forward would be welcome. 9:21:34 AM Senator Merrick wanted to hear from LFD. She wondered whether there was another account where the funds could reside that would serve the same purpose. Co-Chair Olson added that LFD would be called up later in the meeting. 9:22:08 AM Senator Kaufman thanked the committee for hearing the legislation. 9:22:43 AM ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION, relayed that he would address some questions. He cited that the Fuel Emergency Fund had not been used since 2000, when the Disaster Relief Fund statute had been modified to allow for fuel emergencies. He mentioned the Rural Electrification Revolving Loan Fund, which had been supplanted by the Electrical Service Extension Fund in the 1990s. He said that the use of that fund since then had been to repay past loans, which had all been settled. He mentioned the Southeast Energy fund, which was originally capitalized as part of the Four Dam Pool project. He continued that the PCE statute had been amended in 1999 to divert the revenue into the PCE fund. Mr. Painter continued to address the genesis of some of the funds listed, noting that he had once worked at OMB and was aware of the funds. He said that one of the criteria had been to seek out funds that had no source of ongoing revenue. He noted that there were still repayments being made decades after the genesis of some funds, which meant that the funds could not be repealed even after they had been rendered obsolete. He thought the funds listed were identified as having no ongoing source of revenue, no current program, or likely future program that would recreate them. He supposed that a committee or legislature could add money to a fund outside of the original statutory revenue flow, but they would be subject to the CBR sweep. 9:26:42 AM Senator Wilson asked whether there was a time frame that Mr. Painter recommended for deletion of funds. Mr. Painter was not sure that there was a single answer to Senator Wilson's question, but rather LFD would work towards determining whether there was any ongoing activity in the fund or prospect for replenishment. He thought that there could be funds that were created by appropriation that the legislature could want to fund again. 9:27:53 AM Senator Bishop asked whether the Exxon Valdez Oil Spill Unincorporated Rural Community Grant Fund was fully expended. Mr. Painter replied in the affirmative. He explained that there had been two funds related to the spill: the civil fund, which was still active, and the fund related to criminal penalties, which was used to pay unincorporated communities impacted by the spill and was completely granted out. 9:28:45 AM Co-Chair Stedman asked whether Mr. Painter had any recommendations for a similar fund to use as a parking garage for funds to assure equity in energy projects. Mr. Painter thought one option would be to amend a fund to create a new source of revenue. He stated that if there were investment in a new project a portion of that revenue could be diverted in the spirit of equity. Another option would be to put the funds in a non-sweepable account without a designed purpose, but there was a risk that the funds could be unavailable from year to year. He recommended statute modification in regard to maintaining statewide energy equity. 9:30:46 AM Co-Chair Olson thought it was unusual to have a recommendation from LFD regarding the funds. He asked whether his concern was misplaced. He thought Mr. Painter had institutional knowledge, which added to his credibility on the matter. Mr. Painter clarified that he worked for OMB in 2020 and not when the funds were created. He mentioned the Indirect Expenditure Report, which gave the division the duty to make recommendations on indirect expenditures and whether they should be repealed. He thought that the idea behind the legislation could fall under that purview. Co-Chair Olson asked whether Mr. Painter was comfortable with the duty. Mr. Painter replied that LFD was not comfortable making any kind of policy recommendation. He described that reviewing the funds was something that the division could do in a limited fashion, only looking at whether items were following legislative intent. He thought that the divisions scope would be limited and would be conservative in their determinations in order to maintain a non-partisan stance. 9:33:21 AM Senator Merrick asked what determined which funds were sweepable, and whether the list of sweepable funds was subject to change. Mr. Painter relayed that the statute that determined which funds were sweepable had been deemed unconstitutional in the 1990s. Since that time, the matter has been interpreted and executed by the administration. He said that the interpretation of sweepability of funds had changed as new legal opinions had been penned as there was no current statute. 9:34:28 AM Co-Chair Olson asked whether Mr. Painter wanted to address the fiscal note. Mr. Painter discussed a fiscal note from the Legislature with an allocation for Legislative Finance, OMB Component 774. He explained that the bill had a zero fiscal note, as the new duty created by the bill could be absorbed by the division. 9:35:16 AM AT EASE 9:36:09 AM RECONVENED Co-Chair Olson OPENED public testimony. 9:36:33 AM Co-Chair Olson CLOSED public testimony. 9:36:47 AM Senator Kaufman thanked the committee and expressed appreciation for the members' questions. He reiterated that amendments to the legislation were welcome. SB 25 was HEARD and HELD in committee for further consideration. 9:37:17 AM AT EASE 9:38:40 AM RECONVENED