HOUSE FINANCE COMMITTEE March 01, 2004 9:04 A.M. TAPE HFC 04 - 32, Side A TAPE HFC 04 - 32, Side B TAPE HFC 04 - 33, Side A CALL TO ORDER Co-Chair Harris called the House Finance Committee meeting to order at 9:04 A.M. MEMBERS PRESENT Representative John Harris, Co-Chair Representative Bill Williams, Co-Chair Representative Kevin Meyer, Vice-Chair Representative Eric Croft Representative Hugh Fate Representative Richard Foster Representative Mike Hawker Representative Reggie Joule Representative Carl Moses Representative Bill Stoltze MEMBERS ABSENT Representative Mike Chenault ALSO PRESENT Representative Carl Morgan; Kevin Jardell, Assistant Commissioner, Department of Administration; Eric Swanson, Director, Division of Administrative Services, Department of Administration; Al Clough, Deputy Commissioner, Department of Community & Economic Development; Tom Lawson, Director, Administrative Services, Department of Community and Economic Development; Marc Antrim, Commissioner, Department of Corrections: Jerry Burnett, Director, Division of Administrative Services, Department of Corrections; Eddie Jeans, Manager, School Finance and Facilities Section, Department of Education and Early Development; Mark Lewis, Budget Analyst, Department of Education & Early Development PRESENT VIA TELECONFERENCE None GENERAL SUBJECT(S): DEPARTMENT FY05 BUDGET OVERVIEWS  The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 23rd Legislative Session, contact 465- 2156. After the 23rd Legislative Session they will be available through the Legislative Library at 465-3808.   LOG SPEAKER DISCUSSION    TAPE HFC 04 - 32  SIDE A  000 Co-Chair Harris Convened the House Finance Meeting at 9:04 A.M.   DEPARTMENT OF ADMINISTRATION  Co-Chair Harris Stated that he would like the Governor's department amendments to reflect the numbers incorporated in the HFC subcommittee reports.  056 MR. KEVIN JARDELL, He observed that the subcommittee ASSISTANT proposed a $232.8 funding change from COMMISSIONER, general funds to interagency receipts in DEPARTMENT OF the Commissioner's Office. He maintained ADMINISTRATION that this would amount to an unallocated cut to the department. The reduction would be distributed through their agencies. The Division of Motor Vehicles would be reduced by $20,000.  210 Mr. Jardell The Division of Finance has a proposed $470 thousand reduction in general funds, which is of great concern to the department. The Division performs essential functions. As a result of the funding cut, 6 accountants would have to be laid off. They would also be unable to do the Comprehensive Annual Financial Report. This could significantly affect bonding. The report is essential to maintaining credibility.  395 Mr. Jardell Spoke to the proposed reduction in the Division of Labor Relations of $96 thousand, which is a vacant position. He maintained that this would reduce the ability to address problems in FY05.  0504 Mr. Jardell Explained General Services Purchasing would have a general fund reduction of $18.8 thousand, which would require the department to keep a position vacant. He observed that the position aids the department's attempts to reduce costs.  0591 Mr. Jardell The Retirement & Benefits reduction of $240 thousand will have minimum impact due to a change of direction and philosophy.  0634 Co-Chair Harris Questioned travel, asking if there has  been an effort to work out an arrangement with Alaska Airlines to achieve savings.  0713 Mr. Jardell Responded that the state is pursuing cost savings aggressively.  Mr. Jardell The $22 thousand dollar reduction to group health insurance would have a minimal impact.  0750 Mr. Jardell The reduction to leases would be extremely detrimental to the budget. The department would need to come back for a supplemental if they are not funded.  0829 Co-Chair Harris Asked if all leases are long-term and if there are any leases currently in negotiation. Mr. Jardell replied it is difficult to renegotiate 10 percent savings repeatedly. Many leases have already negotiated downward decreases.  0957 Representative Croft Asked the source of the non-general fund amount in the Division of Group Health.  0022 MR. ERIC SWANSON, Explained that the fund source would be DIRECTOR, DIVISION state benefit systems Receipts such as OF ADMINISTRATIVE SBS, and health insurance. Administrative SERVICES, DEPARTMENT costs, such as travel, are paid through OF ADMINISTRATION other fund sources.  1057 Mr. Jardell In response to a question by to Representative Croft, noted that the department identified areas of efficiency and cost cutting, which were incorporated into the Governor's budget.  1157 Vice-Chair Meyer Asked if there has been a savings from outsourcing purchasing.  1228 Mr. Jardell Replied that the department has issued intent to award a contract. He was unsure if the proposed savings were taken into account.  1307 Mr. Jardell Discussed reductions to lease administration, which helps save the state money if funded.  1358 Co-Chair Harris Asked if the proposed cut would eliminate a position. Mr. Jardell responded that the position is vacant.  1429 Co-Chair Harris Asked if the department has negotiated a lease for less than its previous amount in the past six years. Mr. Jardell observed that they have successfully reduced lease costs through negotiation.  1526 Co-Chair Harris Mr. Jardell did not think that there was bargaining strength in a reduced budget for leases. Landlords understand the huge costs of moving offices. Supply and demand sets the cost.  1655 Mr. Jardell Discussed the public broadcasting  reduction. He noted that 3-6 radio stations would have to be shut. There would be a resulting loss in federal match of $185 thousand. There are currently 27 stations, the majority of which are in rural Alaska.  1742 Representative Croft Asked if some of the rural stations would be shut down. Mr. Jardell anticipated that the smaller stations would be those eliminated.  1819 Representative Joule Asked how much public radio stations generate through fundraisers.  1841 Mr. Jardell Unable to respond, but acknowledged that they do a significant amount of fundraising.  1921 Representative Joule Spoke in favor of fundraising efforts of stations.  1940 Mr. Jardell Discussed the Satellite structure. The department is not sure if funding can go halfway: continue public radio or not. The result of a $1.18 million reduction represents the rent to the satellite transponder. Public TV in 255 communities would be eliminated; distance delivery of education would go away.  2040 Representative Pointed to a huge development of Hawker commercial infrastructure in rural Alaska. He questioned if the state is providing something that is available commercially.  2127 Mr. Jardell Noted that the department has scrutinized this question. The Governor supports maintaining these services and did not feel that services to rural Alaska were duplicated. The level of funding has been stagnant for a number of years.  2314 Representative Joule Asked if the state would lose federal money. Mr. Jardell affirmed that federal matching money would be lost. All public television, except Anchorage and Fairbanks would be eliminated.  2418 Representative Croft Asked who owns the satellite.   Mr. Swanson Noted that AT&T Alascom is the vendor.  Representative Croft Ascertained that UAA distance delivery courses and Gavel to Gavel would be affected. He noted that the intent is to allow Alaskans to communicate with each other in remote areas. He maintained that there are no duplicate commercial services.  2517 Representative Fate Asked if medical consultations would be affected.  2552 Mr. Jardell Stated that he would research the question.  2615 Co-Chair Harris Asked about increased satellite costs, which increased by $900 thousand between FY03 and FY04.  2652 Mr. Swanson Thought that the increase could have been due to maintenance work.  2719 Representative Observed that the increase is statutorily Hawker designated receipts. Mr. Swanson recalled that the authorization would allow local communities to fundraise to pay for maintenance. This amount has not been completely utilized.  2759 Co-Chair Harris Asked if fundraising efforts were represented in the statutory designated receipts. Mr. Swanson stated that they are not a part of their budget.  2850 Representative Croft Asked if this eliminates the entire general fund appropriation. Mr. Swanson agreed that all of the satellite funding would be eliminated.  2951 Mr. Jardell Referred to Mr. Fink's efforts at reorganizing and cost savings in the Office of Public Advocacy. He observed that results won't be seen until later, so it is hard to predict the impact of a $50 thousand reduction.  3044 Mr. Jardell The reduction would cost 3 attorneys, which do an average of 960 cases per year. The Office would lose the resources for 960 cases. He observed that the reduction is to an increment, which would be cut in half. Emphasized that it is difficult to predict the impact, but observed that the agency was under-funded this year.  3156 Co-Chair Harris Clarified that the Office of Public Advocacy and the Public Defender Agency receive court appointed cases. They don't solicit business.  3225 Co-Chair Harris Asked the amount of the FY03 supplemental.  3258 Mr. Swanson Replied $1.1 million for OPA and $650 thousand for the Public Defenders Office.  3300 Mr. Jardell Referred to the $150 thousand general fund reduction to the Violent Crimes Compensation Board. The reduction would affect 75 victims, who would not receive compensation. They would also lose $90 thousand in federal match.  3337 Mr. Jardell Clarified that the entire general fund appropriation for the Violent Crimes  Compensation Board would be eliminated. The Board asked for $150 thousand to hold them harmless from a reduction in collections. The Administration supports the request, which is the result of smaller permanent fund dividend amounts.  3517 Mr. Jardell Observed that the funding change to the Division of Motor Vehicles will have no impact.  3727 Mr. Swanson Discussed amendments to the initial request. He observed that there is a request to transfer positions into the central mail unit from the Department of Transportation and Public Facilities and the Department of Fish and Game.  3758 Co-Chair Harris Questioned if there were transfers for lease budgets in individual departments. Mr. Swanson stated that the Administration decided not to reallocate the lease budget. The lease budget would be centralized in the department.  3828 Mr. Swanson Observed that there would be a transfer from the department of Public Safety of just under $10 thousand to provide facility rent for the Violent Crimes Compensation Board, which is now in DOTPF.  3908 Mr. Swanson Noted that the last two amendments were for the Division of Risk Management. There is a $219 thousand increased to cover a rate increase for the Department of Law.  3941 Representative Croft Clarified that items 4 and 5 are part of the state's self-insurance.  3958 Mr. Swanson Explained that the there was a slight rate increase for workers' compensation. The increase would pay for legal services as part of Department of Administration's risk management.  4037 Mr. Swanson Observed that the administrative fee paid to the Department of Labor and Workforce Development was increased for their worker's compensation, the amount should have been in the original budget ($141 thousand).  4145 Mr. Swanson Explained that $990 thousand in facility rent would be transferred from the Department of Public Safety to pay for the Violent Crimes Compensation Board lease space. This was previously housed in the Department of Public Safety and has been transferred to Department of Administration.    DEPARTMENT OF COMMUNITY & ECONOMIC  DEVELOPMENT  4230 MR. AL CLOUGH, Noted that the subcommittee goals were DEPUTY COMMISSIONER, met. DEPARTMENT OF COMMUNITY & ECONOMIC DEVELOPMENT  4333 Representative Croft Asked for more information regarding the subcommittee report.  Representative Fate Observed that $1.2 million in general funds was replaced with business license receipts. The subcommittee also recommended the reestablishment of the film office.  4440 Mr. Clough Discussed proposed amendments. He noted that there are three items in the Office of Economic Development, which center around the transfer of the trade function to the Governor's Office. The first item returns less senior trade staff; the second transfers more senior trade staff; and the third transfers money out to the Governor's Office. Pointed out that there is a $65.3 thousand reduction.  4618 Representative Croft Asked the purpose of the transfer. Mr. Clough replied that the transfer was made through executive order.  TAPE HFC 04 - 32, Side B  4616 Co-Chair Harris Clarified that funding is being transferred into the Governor's office and questioned if there is already a decent size contingency fund.  4504 Mr. Clough Couldn't respond.  4447 MR. TOM LAWSON, Discussed Regulatory Commission of Alaska DIRECTOR, audits and the investigations program, ADMINISTRATIVE which was implemented by EO 111. The SERVICES, DEPARTMENT Regulatory Commission of Alaska's public OF COMMUNITY & advocacy function was transferred to the ECONOMIC DEVELOPMENT Department of Law.  4331 Mr. Clough In response to a question by Representative Joule, stated that there has been on going dialog regarding the lack of revenue sharing and safe community dollars.  4228 Representative Joule Questioned if communities are beginning to petition the Local Boundary Commission to dissolve.  4210 Mr. Clough Did not know of any petitions.  4156 Mr. Lawson Referenced Section #26, Power Cost Equalization. He noted that it would amendment the language section. The  amendment removes $3.7 million in general funds. Money would be used out of the PCE Endowment, which would allow funds to remain in the PCE Fund for use in FY05.  4047 Tom Wright, Staff, Pointed out that the language was Co-Chair Harris contained on page 7, Line 140.  4026 DEPARTMENT OF CORRECTIONS  3954 MR. MARC ANTRIM, Voiced appreciation for Representative COMMISSIONER, Hawker and all the work of the DEPARTMENT OF Subcommittee.  CORRECTIONS 3912 MR. JERRY BURNETT, Spoke to the cuts recommended by the DIRECTOR, DIVISION subcommittee. The FY05 Governor's OF ADMINISTRATIVE proposed budget required the department SERVICES, DEPARTMENT to absorb $2 million in fixed PERS and OF CORRECTIONS lease costs. He pointed out that the department had implemented some efficiencies prior to the subcommittee's recommendation. The subcommittee's proposed funding level represents a significant reduction. He spoke to cuts in inmate gratuities. He acknowledged that actual gratuities paid have been below the authorized amount. However, the reduction would be an actual cut of $670. Gratuities are used to pay inmates to work at facilities, which benefits the state and the inmates. Stated that it would have a detrimental effect on inmate behavior.  3706 Co-Chair Harris He asked if gratuities were paid by the contractor.  3641 Mr. Burnett Replied that the state pays the gratuities. The state is attempting, through negotiation of a new contract, to have the contractor pay inmate gratuities. The subcommittee budget assumes that gratuities would be paid by the contractor.  3543 Vice-Chair Meyer Asked if that payment would go toward health and dental insurance.  3529 Mr. Burnett Explained that there is a co-payment fee.  3517 Commissioner Antrim Noted that inmates are charged $4 dollars the first time the inmate sees a physician on a particular medical issue. Subsequent visits are not charged.  3500 Vice-Chair Meyer Questioned when the co-pay was implemented.  3448 Commissioner Antrim The co-pay has not been changed since it was put in place 3 years ago.  3431 Representative Explained that gratuities have been Hawker eliminated in out-of-state facilities.  The actual amount authorized and paid to inmates was ½ the budgeted amount, which was further reduced by a factor of .5%. The subcommittee did not touch employee salary funds.  3255 Representative Croft Clarified that the intent was to find a realistic amount for gratuities within the system.  3241 Representative Agreed and noted that the amount was an Hawker estimation.  3209 Representative Croft Asked the purpose of deleting gratuities from the out of state facilities.  3153 Mr. Burnett Replied that currently the contractor has control over how much work the inmates do and who benefits from it. The rate should include the payment for the gratuities. Then there would be no extra incentive to over utilize gratuities.  3102 Mr. Burnett Addressed the elimination of a superintendent position. He emphasized the need for the position and pointed out that it provides the first level of supervision. He maintained that level in the department is currently too thin.  3005 Commissioner Antrim Pointed out that the department has eliminated a couple of those positions on their own. The ones currently in place are in operational positions, which address supervision issues.  2840 Representative Stated that the effort was not to Hawker devastate the ability of the front line function. Last year, the Governor issued Administrative Order 207, which stipulated that the position would be eliminated. He noted that the titles had been changed. The subcommittee looked at high level administration positions, two of which are already vacant. The subcommittee looked at all the assistant superintendent positions.  2650 Mr. Burnett Addressed cuts to probation and parole regions, which would be unallocated personal service cuts. The cuts will result in higher caseloads for probation officers. There are increasing number of people under supervision each year. The personal services costs are running below the level authorized as a result of complex difficulties in hiring staff this year. Those positions need to be filled.  2518 Mr. Burnett Noted that there is a 20 percent reduction to the training academy. Training requirements have been increased  during FY04. He spoke to travel costs. Highly trained officers are essential and improve officer morale.  2358 Commissioner Antrim Referred to the hiring of Steve Smith, who has the capability of training a swat team and stressed the need for training.  2326 Representative Acknowledged the need for training. Hawker Observed that the department was given latitude [for fund shifting] in last year's budget structure. The subcommittee cleaned up fund shifting. He stressed that the numbers attending the academy are projected to decrease and that there is a need to do more with less.  2157 Mr. Burnett Reviewed eliminated positions for the Alaska alternative to incarceration project established in 2002. There were nine new positions in 2003. There was a $611 thousand reduction by the subcommittee. Probation officers were brought on to provide alternatives to incarceration. Electronic monitoring costs $19 per day. Alternative supervision is cost-effective.  2006 Commissioner Antrim The average daily count [for alternative monitoring] is 130. Over the course of a month there are up to 1200 people, people otherwise in jail or community residential centers.  1841 Representative Croft Questioned the effect of reducing probation and parole officers. Commissioner Antrim replied that the classification process is exhausting, even for short-term offenders. They are charged not to put high-risk offenders out on the street and emphasized the level of associated paperwork.  1652 Mr. Burnett The reductions would be in the classification section, which is where they belong.  1605 Mr. Burnett Discussed the elimination of 3 programmers from the Information Technology (IT) staff, for a $330 thousand reduction. He pointed out that the existing staff is needed to rewrite the offender tracking information system (OTIS).  1503 Representative Croft Questioned if the department had looked at replacing the system? Mr. Burnett noted that they had researched the issue and concluded that no off the shelf software would work.  1243 Representative Croft Asked if there isn't a single company that writes both jail and prison software. Mr. Burnett replied that they have looked at a number of options. Programmers have customized it so many times, which makes it more difficult to replace. [In house programmers] could do it over three years for about $750 thousand.  1129 Representative Croft Asked if the intent is for the funding to come from the capital budget instead.  1119 Representative He noted that there are 14 employees in Hawker the IT system, with six analyst programmers. Additional employees were added during the ramp up period. He maintained that the process only requires the critical employees.  0930 Representative Croft Questioned if the program could be done with slightly fewer resources. Mr. Burnett replied that the current program has significant issues. It takes longer to book inmates on line. The program still does not work correctly. On the parole side, it works well. There is an inefficient use of staff resources.  0800 Representative Croft Pointed out that good information about recidivism is key for the legislature to make decisions about what works in the criminal justice system.  0723 Mr. Burnett Spoke to the reduction of staff in the Commissioner's office. About half of the staff would be eliminated. He pointed out that the eliminated positions have specific work; the special assistant is in charge of probation and parole. Someone must do that job. The Deputy Commissioner is in charge of all security operations. The department would have to take money out of other components or have work done someplace else.  0550 Commissioner Antrim Pointed out that the department had already eliminated a number of deputy director positions.  0523 Representative Discussed the Commissioner's office and Hawker noted that it had increased positions since FY03. Some positions in the Commissioner's Officer are paid out of other BRUs. There has been a growth in the higher executive ranks. He felt that the resources should be distributed throughout management in the department.  0406 Mr. Burnett Reviewed the change from one appropriation RDU as proposed by the  department to 9 RDUs. In FY04 the department was structured under 3 BRU's. Separate appropriations reduce flexibility. He acknowledged that money was moved between components within the same appropriation but not documented and identified. He emphasized that management flexibility is valuable to the department.  0112 Co-Chair Harris Stressed the need for legislative control over the money.  0044 Representative Noted that the department was given wide Hawker latitude in last year's budget to restructure, which resulted in a real budget reflecting actual expenditures.  TAPE HFC 04 - 33, Side A  0059 Representative Joule Asked the status of the Kotzebue jail.  0118 Commissioner Antrim Observed that funding for the Kotzebue jail was removed. People are being transported to and from Kotzebue for a savings of $200 thousand.  0144 Mr. Burnett Noted that they estimate that $367 thousand will be spent on prisoner transport in FY04. The Kotzebue jail contract was $580 thousand.  0230 Representative Joule Spoke to an audit relating to employees in the department of Corrections. He observed that locals in rural areas such as Nome and Bethel are not applying [for Department of Corrections jobs] because others with more seniority are transferring into these areas to get their three high years [for retirement]. He questioned if the department is acting on the recommendations.  0303 Commissioner Antrim Stated that the department agrees with the points recommended in the audit. The Legislative Budget and Audit Committee audit identified Tier 1 employees getting their high years. Of a workforce of 1500 officers, only 61 employees took advantage of [the option to transfer to rural areas]. He observed that the department started a program in Nome involving an area-wide effort, which includes sending mail-outs about available positions. Pre-certification involves a background check before a person can be hired. Locals did not pursue pre-certification due to the perception that jobs were unavailable. The department has made a commitment to Nome to fix the problem. Bethel employs  53% Alaska Native.  0603 Representative Asked for an update on the out of state Hawker contract.  0637 Mr. Burnett Explained that the FY05 number is a placeholder for out-of-state contracts. The department has received and considered responses to the RFP, which was sent out in January. At this point, the department has not received a response that would lead to a contract. There is limited competition nationwide. He would be surprised if there were price reductions.  DEPARTMENT OF EDUCATION  0755 MR. EDDY JEANS Provided information regarding the MANAGER, SCHOOL department's budget proposal. There is FINANCE AND one increment of $8 million in general FACILITIES SECTION, funds, which would hold the Foundation DEPARTMENT OF Formula level with FY 04. The department EDUCATION AND EARLY will need legislation passed to disburse DEVELOPMENT the money.  0889 Vice-Chair Meyer Explained that the funding was placed in the Foundation Formula on the request of the department.  0923 Mr. Jeans Discussed proposed amendments. There is a request for an increase in the postsecondary lease for $288 thousand. The second request is for an increase in mining & minerals of $40, which was eliminated last year. This item was $50 thousand in prior years.  1018 Mr. Jeans Reviewed the reduction in pupil transportation of $876,600 due to fewer students. The reduction in students means that the department does not need the half million in a CPI increase or the $300 thousand additional money for the program.  1109 Co-Chair Harris Asked if there would be fewer bus routes based on the loss of students.  1200 Mr. Jeans Noted that districts are looking at reconfiguring the way they provide pupil transportation due to the change in the funding mechanism for a reimbursable program to a grant program. He could not say if fewer students would translate to fewer routes.  1295 Co-Chair Harris Speculated that the cost of operating a bus would not be reduced because there are five less students on the bus.  1235 Vice-Chair Meyer Expressed appreciation for the increase in the foundation formula. He pointed to  the challenges with no child left behind legislation and exit exams. He expressed the desire to add more funding for school districts, which are facing [increased costs in] PERS and TRS.  1356 Representative Croft Noted that the formula was changed in the last year, allowed for costs to only increase by half of the rate of inflation. He stressed that inflation is being under funded. He maintained that there is a double trap in pupil transportation.  1421 Mr. Jeans Noted that the department started with the reimbursable program in the past year. He thought that pressure by school districts would eventually lead to the end of the grant program and reinstatement of a reimbursable program, but felt that the rate would be less than 100 percent. He noted that some districts have lowered their costs. He felt that the program was beneficial.  1608 Representative Croft Stressed that the need remains and stated that funding should not be lapsed.  1648 Representative Observed that there is a tendency to Hawker overlook funding for archives and museums, which has eroded steadily for ten years. He stated that he would like to take a closer look at these budgets.  1752 Vice-Chair Meyer Stated that the subcommittee did look at these programs and offered to provide more information.  1809 Co-Chair Harris ADJOURNMENT   The meeting was adjourned at 10:58 A.M.