JOINT COMMITTEE ON LEGISLATIVE BUDGET AND AUDIT January 18, 1999 11:10 a.m. MEMBERS PRESENT Senator Randy Phillips, Chairman Senator Al Adams Senator Rick Halford Senator Drue Pearce Representative Con Bunde Representative Eric Croft Representative Jeannette James Representative Gene Therriault MEMBERS ABSENT Senator John Torgerson OTHER HOUSE MEMBERS PRESENT Representative Gail Phillips OTHER SENATE MEMBERS PRESENT Senator Dave Donley COMMITTEE CALENDER APPROVAL OF MINUTES EXECUTIVE SESSION CONSIDERATION OF PRELIMINARY AUDITS AND SPECIAL AUDIT REQUESTS REVISED PROGRAMS - LEGISLATIVE (RPLs) WITNESS REGISTER PAT DAVIDSON, Legislative Auditor Legislative Audit Division P.O. Box 113300 Juneau, Alaska 99811-3300 Telephone: (907) 465-3830 POSITION STATEMENT: Presented audit history. KATHY PORTERFIELD, Managing Partner  KPMG LLP  601 West 5th Avenue Anchorage, Alaska 99501 Telephone: (907) 265-1212 POSITION STATEMENT: Answered questions on wage and benefit study project purpose. TAMARA COOK, Director Legislative Legal and Research Services Legislative Affairs Agency 130 Seward Street, Suite 409 Juneau, Alaska 99801-2105 Telephone: (907) 465-2450 POSITION STATEMENT: Presented and answered questions on drafted legislation. TOM WILLIAMS, Senate Finance Committee Staff Senator Sharp Alaska State Legislature Capitol Building, Room 516 Juneau, Alaska 99801 Telephone: (907) 465-3004 POSITION STATEMENT: Presented changes that need to be made to the wage and benefit study. ACTION NARRATIVE LBA 1/18/99 TAPE 1 Number 0001 CHAIR RANDY PHILLIPS called the Joint Committee on Legislative Budget and Audit meeting to order at 11:10 a.m. Members present at the call to order were Representatives Con Bunde, Croft, James and Therriault and Senators Phillips, Adams, Halford and Pearce. APPROVAL OF MINUTES SENATOR AL ADAMS made a motion to approve the minutes for the meeting held on December 11, 1998. There being no objection, it was so ordered. EXECUTIVE SESSION Number 0153 SENATOR ADAMS made a motion to move to executive session in order to discuss the preliminary audit reports. There being no objection, the committee went into executive session [time unspecified]. Senator Donley joined the meeting during executive session. The committee resumed open session [time unspecified]. CONSIDERATION OF PRELIMINARY AUDITS AND SPECIAL AUDIT REQUESTS Number 0212 SENATOR DRUE PEARCE made a motion to release the five final audits to the public. There being no objection, it was so ordered. PAT DAVIDSON, Legislative Auditor, Legislative Audit Division, said that over the past year the audit division has been working through a backlog of audit requests. In 1995-1996 the audit division was averaging close to 17 requests per year. In 1997 the audit division received 36 requests, double the workload. Most of 1998 was spent meeting all the requests from 1995, 1996 and 1997. The audits being worked on at present were requested in January and April of 1998. Within six to eight months, assuming a constant flow at 17 audits per year, the division is hoping to be able to complete an audit within two to three months of the request. Number 0360 SENATOR HALFORD explained, "In the last session we passed a bill that required the recordation of the RS 2477 rights-of-way, and it had a fiscal note. They were to be recorded by January 1, by law; none of them have been recorded. The Administration has now said they may record the seven that have been surveyed, but it sounds like they are not inclined to record the rest of them. The fiscal note was funded. I'd like to know what they're doing with the money." He followed up by saying that he didn't think it required an extensive audit, but more a "mini-audit." Number 0435 SENATOR ADAMS stated that he didn't think the amount of money was sufficient to carry out the rights-of-way and that it needed to be looked at closely in order to go through on the surveys. MS. DAVIDSON addressed Senator Halford stating that she would write a letter to the Department of Natural Resources asking about their intentions and what they have done with the money. Also, through an analysis of the accounting records she felt that the audit division could do some verification. Number 0491 SENATOR PEARCE requested a report of the 1998 calender year compensation for the Governor, the staff of the Governor's office, and the commissioners by the end of the month. MS. DAVIDSON replied by stating, "I think that we could take that on, not so much as an audit request, but as a compilation of survey. I think that the agencies went through it last year; I think that they're going to be prepared to do it again this year. Timingwise, I think that we probably could request the information from the agencies, get it compiled. I would estimate that it should be ready by the end of February, if possibly earlier." Number 0631 TOM WILLIAMS, Senate Finance Committee Staff, stated that the final draft of the wage and benefits study, prepared by KPMG, was submitted at the meeting held on December 11, 1998. The contractor was asked to make more of an "apples-to-apples" comparison with regards to state salaries. He continued by saying, "All of the comparison salaries had been standardized to a forty-hour work week. The intent was to also standardize those state of Alaska positions that were over-time eligible to a 40- hour workweek. That had not been done in the December 11 draft. The contractor has done that and the change in their conclusion appears on page 1 of the executive summary. In essence the December 11 draft stated that the comparison salaries were at the high end of the market, whether it was analyzed by looking at the market median or the market weighted average. By making those adjustments, the request of the last meeting, the state employees' overall salaries, wages and benefits, comes in at the top of the market range if you use the market median, and actually it comes in above the competitive market range if you use the market weighted average. So, you didn't change it as significantly as what we might have thought, but it did change that. For the most part, that is the only substantive issue that has changed between the December 11 and current draft." Number 0774 REPRESENTATIVE BUNDE referred to page 2 of the wage and benefit study, second bullet from the bottom, which states that, "State contributions for SBS and PERS are 25 percent higher than retirement and social security contributions for survey participants overall, but similar to retirement contributions for public employers in the survey." He asked Kathy Porterfield, "Are 25 percent higher than an assessment of everyone, but they are similar to other state employees in other states? I guess I don't quite understand that." Number 0819 KATHY PORTERFIELD, Managing Partner, KPMG LLP, replied they're similar to the other public employers in the survey, which are listed in the wage and benefits study on page 8. REPRESENTATIVE BUNDE made a motion to move the legislative budget and audit wage and benefit study out for public release. There being no objection, it was so ordered. Number 0891 TOM WILLIAMS explained that Amendment 1 will make the contract current by changing the date and project manager. KPMG has signed off on it and it has been reviewed by legal counsel. REPRESENTATIVE BUNDE made a motion to amend the contract. There being no objection, it was so ordered. REPRESENTATIVE BUNDE asked Senator Pearce what the draw down is. SENATOR PEARCE replied, "1.1 billion." REPRESENTATIVE BUNDE continued, "On page 2, state contributions for state workers medical benefits are 31 percent higher than average, for retirement 25 percent higher than average, for paid time off it's 48 percent higher than average." Number 0952 SENATOR HALFORD made a motion to draft legislation for committee approval. REPRESENTATIVE CROFT objected, stating that he believes the twenty-first legislature's Legislative Budget and Audit Committee and their chairperson should be the ones recommending drafting legislation. Number 1025 REPRESENTATIVE JAMES replied, "I don't see there is any reason why we shouldn't make a recommendation, since we've had two years of experience. I think it's wise to have a recommendation from the next Legislative Budget and Audit Committee, but I think it needs both of the them." CHAIRMAN PHILLIPS addressed Senator Croft, stating that it is normal for the prior Legislative Budget and Audit Committee to introduce legislation, and then the next Legislative Budget and Audit Committee can "pick up the ball and carry it." REPRESENTATIVE THERRIAULT asked, "So this is the same language?" Number 1100 TAMARA COOK, Director, Legislative Legal and Research Services, Legislative Affairs Agency, stated, "The bill that was passed last year and vetoed by the Governor is SB 347, and it's very much simpler. It required a changed paragraph two to read after the revision, 'expenditures of additional federal or other program receipts under the revised program may only commence after the next regular session has convened and has been in session for 30 days.' My concern with that is that it doesn't contain any time periods, which will ensure that the legislature gets a notice from the Governor of an intention to begin expenditures while the legislature is in session for a period to react to that. So, the draft that I prepared is a bit more elaborate. In particular, if you look at paragraph three, you'll see that I've plugged in some time periods. It may be somewhat arbitrary. They can be changed if the committee wishes. I've just wanted to make sure that we wouldn't be faced with the Governor making an expenditure recommendation the day before expenditures start, because he waits until the 30-day period to make his recommendation. So, especially if you look at the sub- paragraph B, you'll see that I have indicated that expenditures can commence only after the legislature has been convened for at least 30 days after the committee has received the Governor's notice of the intent." SENATOR ADAMS wondered, "Now if there is a time line or a window of federal funds when we're not in session, we can still address that, even with the passage of this legislation?" Number 1191 MS. COOK responded by saying, "It depends on the action of the committee...Under this bill if the committee approves an expenditure of program receipts, again, they can be expended immediately upon receipt of that approval. The Governor is prohibited from making an expenditure for a delayed period if the committee acts to disapprove within 90 days, and even if it is a federal funding situation that would be true under this bill. The Governor wouldn't be able to spend for a period. He can still make the decision that he's going to spend the program receipts, federal or otherwise, despite the LB&A's [Legislative Budget and Audit Committee's] disapproval. But he can't start spending that money until he has given notice of that decision and the legislature has had 30 days after that notice to respond if there is a mechanism by which they wish to respond, either politically or through, possibly, passage of legislation." Number 1243 REPRESENTATIVE CROFT stated that the appropriation that occurred during the interim to acquire land on the Homer Spit, which the Legislative Budget and Audit Committee rejected, the Governor went ahead and did. Under this new statute, the Governor could not have done that until 30 days from 1/19/99. MS. COOK responded by saying that two things would have to occur before the Governor could make the expenditure. First, the Governor would have to notify the committee of his intent, and second, the Governor would not be able to spend the money until the session had been convened for 30 days. This way the legislative body has an opportunity to react to the "expenditure in the offing." Number 1288 SENATOR DONLEY asked what the reaction would be if the legislature didn't want the Governor to expend the funds. MS. COOK responded, "It largely depends upon the way budget treats appropriations of program receipts. Right now what we're doing in the front section is a blanket appropriation of program receipts. We're not identifying particular sources or trying to separate, except in very rare instances, particular types of program receipts. If we get a situation where the legislature knows that the Governor is going to spend money, it will be hard to amend a prior appropriation to peel out the approval for a particular set of program receipts the way we've got it now. And furthermore, if we take legislative action that would be subject to a Governor's veto. So, it's not clear that it's going to be very easy for the legislature to act. Now, what David Teal has suggested to me-and these are all things that have to be worked out really in the finance committee bill, but he has proposed and it's not a bad idea-is an appropriation of program receipts with an automatic lapse date, so that you don't have to face the veto issue. And then what would happen, I would presume, is before the 30-day period runs and these things lapse the legislature would actually re-up them, pass a bill to re-up the ones that the legislature has decided we're going to permit to have continue to be expended without lapsing." Number 1360 SENATOR DONLEY wondered why the burden was put on the legislature to act. He suggested it would be better to say it is not approved unless the legislature approves it in the first 30 days. MS. COOK responded, "Because we basically had a system like that, that was held invalid. It was actually a more complicated statute that existed. There was a lawsuit filed in a case called Kelly (ph) v. Hammond, which said that once the legislature appropriates money it cannot delegate to a committee the power of appropriating, of ultimately determining whether the money will be spent or not. That becomes an executive branch prerogative at that point. So, the best that we can try to do here is delay that expenditure action to build some time for the legislature to react. The other obvious approach is never to make a blanket appropriation of program receipts." Number 1429 SENATOR DONLEY asked if she was saying that the current structuring of the front section as a blanket is the problem. MS. COOK replied, "This is the best I think we can do if the legislature wants to have a blanket appropriation of program receipts, which is valuable in cases involving an anticipated, especially federal funding that may come up that we want the state to have an opportunity to use within a narrow window. It's also possible to take the program receipt front section language that is a broad appropriation and limit it to only federal funds for example, and make the political decision that if there are additional program receipts from the sale of fishing licenses that they come in for a supplemental, but they're going to have to talk to the full legislature. These are our policy questions, that if the legislature still wants a general approach to the expenditure of program receipts, but wants an opportunity to review that, the best we can do--we cannot set up a system that is constitutional that will allow the result of the legislative review after the appropriation to change the fact of the appropriation. All we can do is try to build in enough delay so that if there is a disagreement between the legislature and the Governor that there is at least an opportunity to negotiate politically or to seek a legal remedy." REPRESENTATIVE THERRIAULT asked if the automatic lapse date would be when the legislature convenes. Number 1501 MS. COOK responded, "Essentially as I understand David Teal's idea is that we'd put in an appropriation of the program receipts and then we'd automatically lapse that appropriation on, say, day 25. And if the legislature hadn't acted to pass an appropriation bill, taking particular program receipts that had been approved out of that lapse prevision, they would lapse to the extent that they hadn't already been spent. Some of these may be spent before that day, but that type of a mechanism would have to be built into the appropriation act. The alternative that the legislature faces is the need to pass an appropriation bill amending one of their ... prior year appropriation of program receipts in a way that prevents the Governor's expenditure that they disapprove of, and of course when you pass an appropriation Act then you buy the...potential of a veto. However, even building in a delay in expenditure opens the possibility up for some sort of negotiation to occur, which we don't have now." Number 1558 REPRESENTATIVE THERRIAULT voiced his concern about a meeting that took place during the summer where something was turned down by the committee and one of the members said, "Well, you shouldn't be upset; the Administration can go ahead in 45 days anyways." He followed by saying that legislators need to only say "no" to things they really don't want implemented. Number 1605 REPRESENTATIVE JAMES said it seems the process of having the lapse date is the best way to be effective. There is no way for the committee to react if it is a blanket approval. Without the lapse date the whole thing seems to be just an exercise in futility. MS. COOK stated, "I think that that is basically correct. The problem is that both the lapse date, if you go the lapse date route, or if there is no lapse date, then the legislature does at least have the opportunity to introduce a piece of legislation pulling out the program receipts that they're upset about from the prior year appropriation that is amending that prior year bill. The problem with brand new legislation is that it's subject to a veto, of course. But there would be that possibility of attempting that." REPRESENTATIVE JAMES followed up by referring to some of her previous legislation on regulations that had a lapse date. She felt that if it was specified what was included and what was left out, it would be hard to veto that. Number 1701 MS. COOK stated, "That is correct. That's why I think Mr. Teal thought that this may be a mechanism that the finance committees will want to look at. There are some other possibilities out there, as I understand it, one of which is using a blanket appropriation of federal funds for program receipts, and perhaps a blanket appropriation for program receipts for those agencies that have a history of not abusing their use of program receipts, but when you get into a particular situation where there is what the legislature feels to be an abuse of program receipt authority, simply peeling that department out of the program receipt broad language and making that particular department come to the legislature for a supplemental, and make their case before the full legislature. So there are a couple of things that can be done...Most of those decisions have got to be made on the finance committee level and will go into an appropriation act. All this does is create a statutory mechanism so that we're going to try to build in at least a delay in an expenditure when LB&A [Legislative Budget and Audit] disapproves. Right now we have 45 days and that's not been long enough. We're trying to build in something that will ensure that the delay period will include a time when the legislature as a whole is in session, so that they have the chance to react to the extent that they can under the circumstances, and think about a solution. It doesn't fully address the worries that the legislature has had in this area." REPRESENTATIVE BUNDE suggested that debating the merits of the bills could be done more productively at another time. Number 1764 SENATOR HALFORD stated, "We are totally in control of what happens with regard to budget appropriations if we're willing to write the budget that way. The reason that we have a problem is because of the legislature's attempt to be reasonable with the executive on things that nobody saw ahead of time that may come up. I think we should introduce the bill, put it on the table, negotiate with the executive. I think it was a serious mistake to veto this kind of a bill because the legislature does have the ability not to put that language in there. And if we don't get a solution in this session, in a bill that becomes law, the appropriation in the front section of the budget should be specific to federal funds, it should be specific department by department with a maximum amount, and if they know of a program receipt they should have to come to us before we write the budget and we should have to give them some kind of a specific amount in case they may get that, so that the legislature takes back its constitutional authority unless there's a solution worked out by agreement. That's why I think we should put the bill on the floor, or put the bill in." Number 1812 REPRESENTATIVE CROFT stated that he felt the discussion on the merits of the bill before introduction is appropriate, and that's why he objected earlier, saying that it should be done by the current Legislative Budget and Audit Committee. He followed up by saying that he was ready to vote on whether this Legislative Budget and Audit Committee puts this forward to the future Legislative Budget and Audit Committee. CHAIRMAN PHILLIPS requested a roll call vote. Senator Phillips, Donley, Halford, Pearce, and Representative Bunde, James, and Therriault voted in favor of the motion. Voting against it were Senator Adams and Representative Croft. Therefore, the motion to introduce legislation passed by a vote of 7-2. Number 1894 REPRESENTATIVE THERRIAULT added, "The one RPL that was turned down, dealing with aerospace, one of the issues that was brought up is they were requesting the ability to receive and expend the interest money off the federal funds that they had held, and they have received that approval." ADJOURNMENT CHAIRMAN RANDY PHILLIPS turned the gavel over to the next chair of the Legislative Budget and Audit Committee, Representative Gail Phillips, for adjournment. CHAIR GAIL PHILLIPS adjourned the Legislative Budget and Audit Committee meeting at 12:20 p.m.