HOUSE FINANCE COMMITTEE January 31, 1996 1:58 P.M. TAPE HFC 96-23, Side 1, #000 - end. TAPE HFC 96-23, Side 2, #000 - end. CALL TO ORDER Co-Chair Mark Hanley called the House Finance Committee meeting to order at 1:58 p.m. PRESENT Co-Chair Hanley Representative Martin Co-Chair Foster Representative Navarre Representative Brown Representative Therriault Representative Grussendorf Representative Kelly Representative Kohring Representatives Parnell and Mulder were absent from the meeting. ALSO PRESENT Annalee McConnell, Director, Office of Management and Budget, Office of the Governor; Mike Greany, Director, Legislative Finance Division; Fred Fisher, Analyst, Legislative Finance Division; Virgina Stonkus, Analyst, Legislative Finance Division. SUMMARY PRESENTATION BY LEGISLATIVE FINANCE DIVISION Total Funds Spending; Travel and Contractual MIKE GREANY, DIRECTOR, LEGISLATIVE FINANCE DIVISION provided members with spreadsheets: General Comparisons, Non-Formula General Fund Funding for Contractual and Travel, FY 95 Actual to FY 97 Governor (Attachments 1 & 2). He explained that travel and contractual costs are included in the annual operating budget as line item appropriations. He observed that amounts for contractual and travel costs are estimations. Agencies routinely make transfers and movements from one item to another. He observed that some transfers must be made with the concurrence of the Office of Management and Budget. He reiterated that the line items approved in the budget are subject to change. He pointed 1 out that miscellaneous reductions are spread by agencies to the line items. He stressed that actual expenditures differ from the amount included in the authorized operating budget. He suggested that comparisons of FY 95 Actual to FY 97 Governor will provide bench marks or indicators for work by the subcommittees. He observed that the operating budget is described by fund source and line item. He noted that line items are not budgeted by fund. Therefore, each line item must be calculated for its general fund portion. He acknowledged that recalculations to the component level would provide different results. He stressed that it is appropriate to make these comparisons at the beginning of the budget process. He noted that across the board or miscellaneous reductions taken at the end of the budget process could negate action taken by subcommittees regarding funding priorities. He pointed out that some FY 97 travel levels are below FY 95 actual. Mr. Greany suggested that agencies have more ability to control travel expenditures than contractual expenditures. He pointed out that a wide variety of items go into the contractual line. Professional services, legal services, investment fees, telephones, office rental and supplies are included in the contractual line. Mr. Greany acknowledged that calculations for the University of Alaska are not very accurate. He observed that reductions to the University of Alaska's budget are taken as lump sum miscellaneous cuts. He emphasized that the attachments should be used as indicators, not as self actuating numbers. Co-Chair Hanley referred to FY 95 lapse balances as compiled for the Committee by the Legislative Finance Division. He noted that excess authorization and incorrect calculations accounted for the majority of the $40.0 million dollars identified. He stated that agencies have been requested to provide justifications of their lapsed balances. He estimated that there was $8.0 million dollars in excess authorization for contractual items in the agencies' FY 95 budgets. There was $3.5 million dollars in excess travel authorization for FY 95. He asked agencies to "draw a map" so that subcommittees can understand the justification and comparisons of authorized and expanded travel and contractual money. Mr. Greany stressed that Attachments 1 & 2 are "more tools in the toolbox." He added that figures for the University of Alaska could be off by as much as $3.0 million dollars. He noted that the Department of Law receives significant contractual money for oil and gas litigation and direct appropriations from the Constitutional Budget Reserve Fund. 2 He observed that the direct appropriation from the Constitutional Budget Reserve Fund to the Department of Law was shown in the contractual spreadsheet. He reiterated that the Legislative Finance Division focused on general fund appropriations. Mr. Greany provided members with a spreadsheet: FY 96 and FY 97 Legislative All Funds Fiscal Plan (Attachment 3). In response to a question by Representative Brown, Mr. Greany explained that "Specials & Fund Transfers" refers to transfers to and from the Permanent Fund. Deposits to the Fund as proposed by the Governor or SB 84, inflation proofing and dividend payments are included. He observed that without the Permanent Fund items the difference in total other funds between FY 96 and FY 97 would be approximately $15.0 million dollars. Representative Martin commended the Legislative Finance Division for its research. Co-Chair Hanley pointed out that the lapsed balance is smaller when excess authorization is taken into account. In addition, travel and contractual appropriations may be transferred to other line items. ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR observed that the Office of Management and Budget does similar review during the development of the budget. She emphasized that unseen factors can account for apparent changes in travel or contractual expenditures. She pointed out that if a component has a federal grant that is heavier or lighter on travel it can distort calculations used by the Legislative Finance Division. Representative Martin referred to the Administration's effort to reduce rent and lease costs. He questioned if contract negotiations affected the contractual amount of some agencies. He asked if there was a main theme as to why contractual line items were high in some agencies. Ms. McConnell explained that savings were identified by project or program. She stressed that the Office of Management and Budget requested justifications from the agencies for increases in contractual or travel. Co-Chair Hanley pointed out that the Department of Revenue shows $6.0 million dollars in excess authorization after expenditures. He suggested that this is the result of authorization provided for management of the Permanent Fund. Ms. McConnell noted that mid course changes are sometimes implemented during the year and may result in over authorization. Co-Chair Hanley and Ms. McConnell discussed how agencies 3 would respond to subcommittees regarding their travel and contractual levels contained in Attachments 1 & 2. They concluded that, in general, agencies will submit brief written explanations for differences in funding levels. Mr. Greany discussed Attachment 3. He noted that past years' spending plans have focused on general fund expenditures. He observed that the focus has been broaden to encompass "all funds". He pointed out that the arrival of the constitutional amendment on the Constitutional Budget Reserve Fund resulted in the need to look at all funds available for appropriation. He emphasized that the work of the Long Range Financial Planning Commission (LRFPC) also brought a heightened awareness of "all funds". He noted that the Legislative Finance Division is using a format which includes general funds, federal funds, other funds and total funds for each year. He noted that the amounts contained in Attachment 3 under FY 96 authorized are those passed in FY 96 appropriation legislation. He stressed that the figures contained under FY 97 Governor are based on legislation introduced by the Governor on January 11, 1996. He observed that the Legislature has not received the Governor's capital appropriations legislation. He referred to duplicated expenditures included in Attachment 3. He noted that money appropriated and then transferred to another agency results in double accounting. He stated that interagency receipts, Reimbursable Service Agreements, the Highway Equipment Working Capital Fund, Information Services Fund, Marine Highway Fund and capital improvement projects are among those appropriations that are duplicated for accounting purposes. (Page 2 of Attachment 3 contains a list of duplicated funds.) He pointed out that although the money is appropriated twice it is only spent once. He observed that duplications were demonstrated on a statewide basis. He stressed that the Legislative Finance Division can display duplications by agency. He observed that the Department of Law receives a large portion of its funding through interagency receipts. (Tape Change, HFC 96-23, Side 2) Mr. Greany referred to the Debt Retirement Fund. He noted that appropriations for general obligation service and school debt reimbursement are deposited into the Debt Retirement Fund. These items are then appropriated from the Debt Retirement Fund to the receiving fund or purpose. He observed that the Legislature can choose to continue this process or make direct appropriations. He referred to Capital Improvement Project (CIP) receipts. He observed that CIP receipts may not have been appropriated in the current budget year. 4 Co-Chair Hanley referred to the title of Attachment 3. He noted that it is not a legislative plan. He observed that the attachment is a balance sheet as opposed to a legislative plan. Co-Chair Hanley noted that the Governor's FY 97 capital projects request is $6.0 million dollars below the FY 96 authorized level. He observed that adjustments were made for CIP transfers from the capital budget to the operating budget. Mr. Greany explained that approximately $6.5 million dollars were transferred to the operating budget from the FY 97 CPI request. He added that an adjustment was also made in the FY 96 authorized budget to reflect an appropriation that should have been contained in the FY 95 budget. Co-Chair Hanley observed that if there is an agreement on the transfers to the operating budget that a similar adjustment should be made to the FY 96 authorized budget for comparison purposes. Mr. Greany pointed out that the Legislative Finance Division's calculations for FY 96 authorized columns were based on FY 96 appropriation law. He agreed that a similar adjustment for FY 96 would provide a better comparison. Representative Martin questioned if adjustments were made to include Legislative Budget and Audit Committee approved general fund program and federal receipts. Mr. Greany stressed that Revised Program Legislature receipts (RPL)'s are traditionally included once a year at the end of the fiscal year. He noted that the Governor's budget plan shows approximately $1.5 million dollars in approved general fund program receipts from RPL activity in FY 96 to date. He noted that no amounts are shown for FY 97. He stressed that either RPL's should not be included for comparison purposes or they should be included in both years. Co-Chair Hanley pointed out that some appropriation items have been partially funded with the intent that the full cost would be included in supplementals. He noted that RPL's increase actual spending after the legislature adjourns. Mr. Greany stated that general fund program receipts approved through RPL's have amounted to approximately $3.5 million dollars annually. He noted that the inclusion of federal and other funds would result in a significantly higher amount. He noted that the Legislative Budget and Audit Committee recently approved $40.0 million dollars in Exxon Valdez Oil Spill Settlement (EVOSS) funds for land purchase. He noted that EVOSS monies have come in through the RPL process rather than through the budget. Therefore, EVOSS funds have been treated off budget. He suggested that 5 discussion needs to occur to decide if EVOSS funds will remain in the RPL process or be brought into the budget process for an initial appropriation each year. He pointed out that appropriations can be fine tuned during the interim through the RPL process. Representative Martin asserted that legislators will have a better understanding of how EVOSS funding impacts the three major departments at the end of the year. He noted that the Department of Environmental Conservation has 250 positions funded through EVOSS. He questioned what will happen to departments which have become dependent on EVOSS money when EVOSS funding ends. He observed that EVOSS funding will end in six years. Representative Martin suggested that duplication can be reduced through statutory changes. Co-Chair Hanley noted that some duplication is necessary for accounting purposes. Mr. Greany referred to the Marine Highway System. He noted that an accounting process was developed to recognize that passenger receipts are budgeted into the next year. He stressed that if the Debt Retirement Fund was repealed that general fund expenditures for debt retirement would still be shown in the front section of the budget. Co-Chair Hanley maintained that supplementals were not included in calculations for FY 96 or FY 97 in Attachment 3. Mr. Greany pointed out that FY 96 supplemental legislation has not been passed. Representative Martin referred to the Fisheries Enhancement Tax and shared taxes. Mr. Greany noted that an agreement was reached between the Governor and the Senate and House Finance Committee Chairmen to take these items off budget. He noted that these items were not included in FY 96 or FY 97 budgets. Co-Chair Hanley noted that it would be helpful to show the amount of these items as a footnote. Mr. Greany explained that shared taxes are specifically listed by their statute reference in the front section of the budget. He added that the State collects the Fisheries Enhancement Tax on behalf of the aquaculture associations. Ms. McConnell pointed out that shared taxes were added as a footnote in the Governor's budget summary. She corrected statements by Mr. Greany by pointing out that $17.0 million dollars for a FY 97 supplemental and $2.0 million dollars for new legislation were included in the Governor's proposed FY 97 budget. Discussion ensued regarding discrepancies between the Administration and the Legislative Finance Division regarding the level of the Governor's FY 97 proposed budget. Mr. Greany noted that the calculations by the Legislative Finance Division are based on the Governor's introduced 6 legislation. The Governor's spending plan is at variance with the appropriation legislation due to the inclusion of the Alaska Court System's full request and other items that are not represented in the spending plan. Representative Martin encouraged the Administration to offer suggestions for statutory changes that would simplify the budget process. Ms. McConnell noted that appropriations from the 470 Fund could be clarified. In response to a question by Representative Therriault, Co- Chair Hanley reiterated that the estimated FY 97 supplemental would be $17.0 million dollars. Two million dollars was also included in the FY 97 Governor's proposed budget for new legislation. Ms. McConnell pointed out that the cost of implementing the Retirement Incentive Program has not been allocated to the agencies. Agencies will have to incorporate the $5.0 million dollar savings to the State from early retirements. Ms. McConnell provided members with information on FY 95 lapse balances for the Department of Education (Attachment 4). Co-Chair Hanley noted that Ms. McConnell could discuss the attachment during the scheduled joint Senate and House Finance Committee meeting on February 2, 1996. Ms. McConnell noted that the Administration is preparing a letter regarding EVOSS funds. Discussion ensued regarding items that would be discussed during the February 2, 1996 proposed meeting. It was agreed that risk management rates, forward funding retirement actuarials and health benefit reserves would be discussed. In response to a comments by Mr. Greany, Ms. McConnell explained that the Administration intends to bring EVOSS appropriations into the FY 97 operating budget. Ms. McConnell referred to Attachment 4. She observed that the Administration anticipates a $1,839.5 million dollar lapse in K-12 support for FY 95. She suggested that the lapse could be used as a carry-forward to balance the FY 97 one-time increased appropriation from the Public School Fund. Co-Chair Hanley asked for the Administration's preference regarding the spring pupil count. He noted that a line item of $1.0 million dollars is included in the revised numbers of Attachment 4 to fund pupil count adjustments. He noted that school districts are required to perform a pupil count in the fall for school foundation formula funding. A second pupil count is performed in the spring. The Department of 7 Education is required to consider and submit an adjustment for school districts that provide adjusted counts. He observed that school districts are not required to submit the revised figures. He pointed out that only school districts with increased attendance submit their counts. He questioned if two counts should be required and adjustments be made for decreased enrollment or if the second count should be eliminated. In response to a question by Representative Therriault, Ms. McConnell explained additional funds are needed for an Anchorage vocational education adjustment. She added that $123.0 million dollars is owed to the Canadian government for Hyder students attending school in Canada during FY 95. ADJOURNMENT The meeting adjourned at 3:29 p.m. 8