GENERAL SUBJECT(S): FY00 OVERVIEW: Annalee McConnell, Director, Office of Management and Budget David Teal, Director, Legislative Finance Division The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 21st Legislative Session, contact 465-2156. After the 21st Legislative Session they will be available through the Legislative Library at 465-3808. Time Meeting Convened: Tape(s): HFC 99-2, Side 1 and 2 HFC 99-3, Side 1 PRESENT: X Representative G. Davis X Co-Chair Mulder X Representative Foster X Co-Chair Therriault X Representative Grussendorf X Representative Austerman X Representative Kohring X Representative Bunde X Representative Moses X Representative J. Davies X Representative Williams ALSO PRESENT: ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR; DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, DAN SPENCER, CHIEF BUDGET ANALYST, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR. LOG SPEAKER DISCUSSION 35 Rep. Mulder Convened the meeting at 1:35 p.m. 86 ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR Observed that there is no possibility to make up short falls through cuts alone. Emphasized commitment to education and child protection. Emphasized that the Governor's budget accommodated increases for programs that would aid youth and reduce crime. Prison population continues to grow. Decision in FY 99 budget was not to pay the highest out-of-state rate for prison beds. The only state with a reduction in its budget. 385 Ms. McConnell Provided committee with handout, Balancing the FY00 Budget (copy on file). Ms. McConnell With inflation the FY00 budget is less then FY99. Co-Chair Therriault Asked if the general fund contribution is less? 510 Ms. McConnell Yes, the general fund contribution is lower. Total funds show growth, partially due to the permanent fund. The return on the state's investment exceeds oil revenues. 601 Ms. McConnell There are two areas that are not reflected in the FY99 budget. Investment in child health and protection, tobacco control and public health would be paid with tobacco settlement money. The match needed to secure maximum federal highway funds would be paid with motor fuel increases. Increases are neutral in respect to the fiscal gap. Programs are supported by fees. No additional draw is needed on the Constitutional Budget Reserve. 627 Ms. McConnell Alaska has opportunity to expand with federal funds. The state stands to gain $3 million dollars in federal tobacco settlement funds over that next 25 years that would require a state match. Discussed proposal to increase state fuel tax as a match to secure highway funding. 730 Ms. McConnell Increase could be a statutory designation to note the intention to raise fuel tax to pay for transportation improvements. 764 Ms. McConnell Discussed the tobacco settlement and looked at handout. There is a sustainable source of revenue. See page 2. 825 Ms. McConnell Discussed programs that would use tobacco settlement money. Child protection and prevention programs would be included. The major new element would be in child abuse prevention. This would require $3 million in new funding. 897 Ms. McConnell Looked at areas of reduction. $40 million in debt retirement. Discussed the $50 million dollar dividend from Alaska Housing Finance Corporation (AHFC). Not all of the money was used. The debt amount would go back up next year. 995 Ms. McConnell Discussed funding for the safe water program. Noted that the state will receive increased federal funding for the safe water program for fewer state dollars. Ms. McConnell Discussed the proposal to change the Longevity Bonus program to needs based. Eligibility would be capped at $60,000. 1056 Ms. McConnell Discussed the need for unspecified reductions. 1159 Ms. McConnell Discussed position counts. Emphasized that positions are broken down by funding source. Some positions are funded with CIP receipts. Positions may have a combination of funding sources. 1229 Ms. McConnell Noted that 70 positions are only technical changes. 56 positions are associated with the Malaspina. The position count was not included in the FY99 budget. Ms. McConnell University requested a $16 million dollar increase in their budget. The university budget is $5.6 million dollars above FY99. They will do a budget amendment to show the reduction. 1339 Ms. McConnell Noted that there are some new positions but emphasized that they have tried to locate a funding source. Discussed pioneer homes. 1398 Ms. McConnell Proposes to use rate increase to improve pioneer homes. 1429 Ms. McConnell 43 new positions in the Department of Corrections. Ms. McConnell 15 positions in Department of Education are federally funded 1494 Ms. McConnell Village Safe Water positions are federally funded. 1531 Ms. McConnell 37 positions to operate youth treatment facilities that were approved and are under construction. 1590 Ms. McConnell 21 positions funded with tobacco settlement There are 23 new positions in the Department of Health and Social Services that are also funded in other ways. 1601 Ms. McConnell Emphasized that the 600 new positions will not affect the fiscal gap. 1618 Ms. McConnell Noted new formats for the budget. Half of the agencies are using the automative budget system. 1658 Ms. McConnell Offered assistance. Noted that there are issues that cross over departmental lines. 1755 Co-Chair Mulder What is the Tobacco settlement dependent on? 1779 Ms. McConnell The amount is known, but the date is unknown. 21.9 million will be received no later than the last day of FY 2000. Partial payment will be received no later than June 2000. 1837 Co-Chair Mulder Does the state need to enact legislation 1851 Ms. McConnell No legislative action is required. 1879 Co-Chair Mulder T21 transportation funding of $3 billion? over the next ? years. Federal funds cannot be used for maintenance. 1906 Ms. McConnell Money cannot be used for snow plowing, but some may be used for rehabilitation. 1951 Ms. McConnell Discussed federal funding for roads. 1988 1 Co-Chair Mulder Noted that the public would support increases if they saw their roads improved. 2008 Ms. McConnell Noted that Hawaii has gotten some concessions for spending road money on maintenance 2027 Representative J. Davies Referred to page 4 of the Legislative Finance Division. 2044 Co-Chair Therriault Asked the savings of a needs based longevity bonus 2056 DAN SPENCER, CHIEF BUDGET ANALYST, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR Explained that there would be approximately $7 million dollars in savings from a needs based longevity bonus. 2079 Co-Chair Therriault Yearly obligation of current program? 2089 Ms. McConnell Projections will be updated before budget amendment time, March 4th. 2121 Co-Chair Therriault Noted that there is an $1.1 million dollar reduction in the Child Support Enforcement Division do to success in welfare reform? Questioned if other states have experienced the same trend. 2178 Ms. McConnell Observed that other states are experiencing the same trend. 2193 Co-Chair Therriault Questioned general fund success of welfare reform. 2201 Ms. McConnell Noted that success in welfare has created demand for childcare. 2272 Co-Chair Therriault Requested information on fire suppression. 2291 Mr. Spencer Discussed funding for fire suppression. 2303 Ms. McConnell Discussed the funding mechanism for fire suppression. No attempt was made to show funds for disasters that have not yet happened. 2344 Representative Austerman Asked for information on new positions. Mr. Spencer Explained that authorization on Malaspina positions were not shown in FY99 because they were not certain. The FY99 only shows what the legislature technically included. 000 TAPE 3, SIDE 1 TAPE CHANGE Representative Austerman Pointed out that Malaspina was authorized in FY99. Mr. Spencer Pointed out that the Kennicott replaced the Malaspina. 101 Representative Austerman Asked a question regarding public safety. Ms. McConnell Explained the 17 new trooper positions. Not all were funded by July 1. There had been positions on paper that were not funded. The decision was made to use the number of troopers that were actually funded. 243 positions were actually funded. 374 Representative Austerman 85 percent of Department of Transportation and Public Facilities employees are federally funded. Expressed concern that federal dollars can affect the general fund. 547 Ms. McConnell Pointed out that they have turned down some federal funds. 597 Ms. McConnell Looks at the expectation of continuing programs that were begun with federal funding. Acknowledged that not all increases are good, but emphasized that not all decreases are good. 630 Representative Austerman Noted that transportation has the greatest amount of state employees. Expressed concern that additional federal funding may not continue. 734 Ms. McConnell Department of Transportation and Public Facilities is 85% federally funded. This includes capital. 760 Co-Chair Mulder Concern of leadership to try to curb expenditures in FY99. Observed that there is a RFP for 5,000 sq. feet for Department of Health and Social Services. Have options been explored to delay? 820 Ms. McConnell Explained that it is office space for additional child support enforcement workers. Maintained that departments were not adequately funded in FY99. Increases have been absorbed. Increases in expenses have not been met with increased revenues. The Departments have worked with fewer staff. Not always possible to absorb costs. 918 Co-Chair Mulder Observed that it would help for Administration to take steps to reduce existing budget. 995 Ms. McConnell Acknowledged that the public wants cost affective government. 1023 Ms. McConnell Emphasized that inflation costs have been absorbed by agencies. 1065 Representative Williams Asked who did the work in child protection before new positions. Questioned if the administration would look at consolidating agencies. 1211 Ms. McConnell Only the most serious reports were responded to. Other reports of harm were not being responded to. Additional workers allow more cases to be investigated. The governor is looking at options of consolidations. 1269 Ms. McConnell Responded that some expansions have resulted from federal mandates and requirements. Discussed options to consolidate that have occurred due to changed in federal requirements. 1329 Representative Williams Further discussed on the desire to see consolidations. 1428 Representative J. Davies Noted that there have been reductions and efficiencies. 1472 Representative J. Davies Commented on consolidations. There are a number of reasons why individual agencies were created. Pointed out that reductions in service may occur with consolidations. Noted that the state has grown over the past years. 1599 Representative Kohring Expressed interest in further discussions regarding consolidations. Emphasized that restructuring can create efficiencies. 1698 Representative Bunde Alaska has 19 programs that other states do not have. 1709 Ms. McConnell Longevity bonus is one of the programs that other states do not offer. 1731 DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION Discussed agencies role in appropriation process. Shows operating and capital budgets going up. Provided handout. Noted that there are differences between the lfd and omb. 1855 Representative J. Davies Observed that there are always differences and requested that Legislative Finance Division and Office of Management and Budget work together to reconcile differences where possible. LEGISLATIVE FINANCE DIVISION 1878 Mr. Teal Legislative Finance Division has worked with Division and Office of Management and Budget to find areas that are more technical in disagreement. 1978 Mr. Teal Discussed differences in interpretations. LFD looks at actual legislation. Discrepancies occur in Corrections and in the amount of reductions. The governor includes some reductions dependent on legislative actions, such as the longevity bonus. There are some small technical differences that remain. 1993 Mr. Teal Some expenditures by the Governor are off budget. Discussed off budget items. Power to appropriate includes ability to specify funding source. This belongs to the legislature not the governor. Tobacco funds are identified as other because they need to be tracked. 2096 Mr. Teal The Legislative Finance Division does not normally track positions. Did show on page two of handout. Noted that the Governor's budget did not show funding for collective bargaining 2133 Co-Chair Therriault End of 3 year negotiated period for most state employees. Where are we for university? Mr. Spencer University contract negotiations vary. Mr. Teal There has been agreement on a $16.5 million dollar supplemental reserve. Governor has suggested that the supplemental for FY99 could be as much as $50 million dollars. 2184 Mr. Teal Gov.'s budget generally grows between introduction and the 45th day of session. 2212 Mr. Teal Discussed Alaska Housing Finance Corporation (AHFC) receipts. Noted that there are issues that need to be resolved. The Legislative Finance Division left AHFC receipts as presented by Gov. 2258 Mr. Teal Alaska Industrial Development and Export Authority (AIDEA) revenues were classified as other funds. How they are classified will affect budget amount. 2300 Co-Chair Mulder Has the AIDEA dividend gone through the general fund? 2319 Mr. Teal Sometimes it has gone through the general fund, other times as other funds. 2333 Co-Chair Therriault Asked if debt retirement is being carried forward to reduce the next year. 2353 Mr. Teal Complicated issue, which needs further clarification. 054 Mr. Teal Discussed capital budget. $27 million increase in general funds for capital budget. 194 Mr. Teal Noted that if tobacco tax goes through the general fund there will be an increase in the budget. 233 Representative Grussendorf Pointed out that the legislature also manipulates funding sources to make the budget appear smaller. 372 Mr. Teal Agreed that some expenditures have been reclassified, but that there have been some actual reductions. 404 Mr. Teal If there is an existing fund source that can be used by the Administration it is not up to them to change the funding source. It is up to the legislature to determine the funding source. 575 Mr. Teal Discussed tobacco tax. He pointed out that everyone agrees that the money is not on budget. Future funding is dependent on creating model legislation. 667 Ms. McConnell No money has been received from the tobacco settlement. She acknowledged that the governor's budget and the governor's bill are not identical. She explained why they are not identical. 818 Ms. McConnell Emphasized that it is difficult to compare FY99 to FY00. Pointed out that some things that were funded through the bond bill will have to be funded by general funds 893 Representative J. Davies Asked for more information regarding the requirement for model legislation. 926 Ms. McConnell Will provide further information. 945 Co-Chair Mulder Adjourned the meeting at 3:25 p.m. HOUSE FINANCE COMMITTEE LOG NOTES January 21, 99 HFC 7 1/21/99