HOUSE STATE AFFAIRS STANDING COMMITTEE January 30, 1996 10:00 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative Scott Ogan, Vice Chair Representative Joe Green Representative Ivan Ivan Representative Brian Porter Representative Caren Robinson Representative Ed Willis MEMBERS ABSENT All members present. COMMITTEE CALENDAR ADMINISTRATION PRESENTATION: SUPPLEMENTAL APPROPRIATIONS ON THE FEDERAL SHORTFALL PREVIOUS ACTION None WITNESS REGISTER ANALEE MCCONNELL, Director Office of the Director Office of Management and Budget Office of the Governor P.O. Box 110001 Juneau, Alaska 99811-0001 Telephone: (907) 465-4660 POSITION STATEMENT: Provided comments on the supplemental appropriation on the federal shortfall. JOHN KATZ, Special Counsel Washington D.C. Office Office of the Governor 444 North Capitol NW, Suite 336 Washington D.C. 20001-1512 Telephone: (206) 624-5858 POSITION STATEMENT: Provided comments on the supplemental appropriation on the federal shortfall. MARTHA STEWART, Special Assistant Washington D.C. Office Office of the Governor 444 North Capitol NW, Suite 336 Washington D.C. 20001-1512 Telephone: (206) 624-5858 POSITION STATEMENT: Provided comments on the supplemental appropriation on the federal shortfall. JANET CLARK, Director Central Office Division of Administrative Services Department of Health and Social Services P.O. Box 110650 Juneau, Alaska 99811-0650 Telephone: (907) 465-3082 POSITION STATEMENT: Provided comments on the supplemental appropriation on the federal shortfall. ACTION NARRATIVE TAPE 96-07, SIDE A Number 1841 The Administration Presentation on Supplemental Appropriation on the Federal Shortfall was called to order by Chair Jeannette James at 10:10 a.m. Members present at the call to order were Representatives James, Ogan, Green, Ivan, Porter, Robinson, and Willis. No members were absent. CHAIR JAMES called on the first witness, Analee McConnell, Director, Office of the Director, Office of Management and Budget, Office of the Governor. ANALEE MCCONNELL, Director, Office of the Director, Office of Management and Budget, Office of the Governor, announced she appreciated the committee members for their time today to receive an update on the federally funded programs. She stated a bridge financing bill was proposed in early January due to the uncertainty in Washington D.C. She also stated John Katz, Special Counsel, was on-line in Washington D.C. to share his perceptions with the committee members. She announced there was a great deal of uncertainty still and the agencies were working minute-by-minute to update their status. Ms. McConnell said the agencies and the Administration were walking the line between causing unnecessary disruption of federally funded services by overreacting, and not being fiscally responsible by acknowledging what might happen if the federal funding levels were lowered. CHAIR JAMES called on the next witness John Katz, Special Counsel, Washington D.C. Office, Office of the Governor. Number 1896 JOHN KATZ, Special Counsel, Washington D.C. Office, Office of the Governor, announced Martha Stewart was also on-line in Washington D.C. to help answer questions. He said the situation in Washington D.C. was characterized by uncertainty. He stated he had never seen a situation like this before and there were no patterns to extrapolate with accuracy about what might happen. He further stated Congress passed a continuing resolution until March 15, 1996. He said Congress would not be working on appropriation issues between now and late February. The current federal budget process divided itself, he stated, into categories to include agencies subject to appropriation bills in the normal course of business, agencies that received money at the conference committee level, agencies that received FY95 appropriations at the lesser of either chamber's level, and agencies funded at 75 percent of the FY95 level. He further said some agencies were funded based on the FY95 budget at the 95 percent level until September 30, 1996. In Alaska the agencies most affected were unemployment insurance and medicaid. The final complications, he said, were the unresolved differences between the political parties regarding welfare, medicaid and medicare reform. In conclusion, he stated, there were tertiary impacts, as well, for agencies in the Department of the Interior because Alaska was a public land state. CHAIR JAMES asked where the veterans fitted in this scenario. MR. KATZ called on Martha Stewart to respond. Number 2152 MARTHA STEWART, Special Assistant, Washington D.C. Office, Office of the Governor, replied some, but not all of the veteran's benefits were protected until September 30, 1996. She asked which programs in particular Representative James was concerned about. CHAIR JAMES said Ms. McConnell mentioned the veterans in an earlier discussion. MR. KATZ announced he would get back to the committee members in response to the particular questions regarding veterans. CHAIR JAMES said thank you. Number 2170 MS. MCCONNELL said the department was concerned about the disabled veterans programs. She said it first appeared the programs would be funded at the 75 percent level. However, every time the department was ready with a compilation more information was received that either would higher or lower the estimation. She said other states were caught in this uncertainty also. She said, it was difficult to receive the most up-to-date information from the federal agencies. However, at this point she felt the veteran's programs were in good shape. She announced Arbe Williams, Director, Central Office, Division of Administrative Services, Department of Labor was here to answer any specific questions. Number 2228 CHAIR JAMES said she was willing to bridge finance when the only thing holding up a decision was an accounts receivable from the federal government that guaranteed funding. She further said she was concerned if the funding was authorized by the legislature over and above the state budget then subsequently cut by the federal government, she asserted, to make up the difference a cut would be needed elsewhere. However, she suggested language could be devised to address this issue. Number 2284 MS. MCCONNELL responded the language proposed initially was pulled together quickly with the expectation adjustments would be made. She wondered what should be done about a program which is funded at the 75 percent level now, but was expected to be funded at a higher level, because there was no guarantee of the higher federal funding. She said she asked Mr. Katz if an agency was being funded at a 95 percent level was it possible Congress would decide to cut it back to 80 percent, for example, which would cause adjustments. She said Mr. Katz felt that was unlikely. She also said the department was concerned about laying people off in the interim when it was believed the issue would be resolved. There were other states that did lay people off during the time of uncertainty and resumed during the next continuing resolution. She stated that was not a good situation, however. She further said most issues were working out as hoped, such as unemployment insurance. She said two departments were here today to answer questions, the Department of Health and Social Services, and the Department of Labor. She asserted in some cases general fund matches would be spent at a faster rate. She stated this was a reasonable risk. In conclusion she wondered when to scale services that were being scaled back at the federal level also. She wondered if the cuts should be made now or at the end of the continuing resolution period resulting in more adjustments at the end of the fiscal year. Number 2440 CHAIR JAMES replied she was concerned about eliminating something that did not need to be cut to make up for the deficit. She further enquired about the 95 percent level, and asked if it was higher at the FY96 than the FY95 budget. MS. MCCONNELL asked if Chair James was referring to federal funds. CHAIR JAMES replied yes, or was it left at that level. MS. MCCONNELL replied no, a higher level was not assumed. Except, in the area of medicaid. She said Alaska was at a disadvantage in the medicaid proposals in Congress and the Administration was working closely with the Alaskan Congressional delegation. Otherwise a more conservative figure was assumed, she stated. TAPE 96-7, SIDE B Number 0000 REPRESENTATIVE SCOTT OGAN commented there was an unprecedented draught in the state right now, and unless it snowed, he alleged, there would be an early and hot fire season. He wondered how this would be affected as there was a lot of federal funding that went toward fighting the wild land fires. Number 0035 MR. KATZ replied he was not sure because wild land fire fighting had not been singled out for special attention. He said it was part of the Department of the Interior's budget which was uncertain. He said it was an issue for the Alaskan Congressional delegation. Number 0060 REPRESENTATIVE OGAN responded he would appreciate it if the issue was addressed. He reiterated his district had no snow and he was concerned. Number 0071 MS. MCCONNELL said it was also an issue that would be addressed in the supplemental budget with respect to disasters. She stated a bad break-up was anticipated this year due to climate conditions and more information would be available later this week. Number 0125 REPRESENTATIVE PORTER wondered if it was easier to maintain the previous level or anticipate the reduction and administer at the reduced level. Number 0134 MS. MCCONNELL said initially it was to maintain the 95 federal level which was appropriated in the FY95 state budget. However, the uncertainty was piece-meal. She said it was never the intention to use this to address larger policy issues such as a state response to a federal budget reduction from here forward. Therefore, she stated, larger policy questions needed to be addressed as well. She hoped it would be dealt with in the FY97 budget as it would be an appropriate time to think it through, and temporarily kept things going through the end of the state fiscal year. She cited the Occupational Safety and Health Administration (OSHA) was the one agency the Administration now anticipates a federal funding level of 85 percent, therefore, it was time to start looking at the issues involved. Number 0198 REPRESENTATIVE PORTER suggested including the different funding levels in the bill. Number 0217 CHAIR JAMES said it was important to know who the people were and what they did to determine how a decision would affect them, and suggested a scenario was needed. Number 0229 REPRESENTATIVE PORTER replied part of the scenario was the state level, the anticipated federal level, and the requested level. Number 0238 MS. MCCONNELL said this was the first time there was an extended time period where the funding level was known. She asked the committee members if it was timely to bring a supplemental bridge financing bill forward through the committees, or for the Administration to proceed as it had been. Number 0287 CHAIR JAMES said the legislature was confused also. She asserted it was important to not expand the spending already authorized. She stated the only way to deal with the issue was through supplemental funding. She reiterated it was a tough decision and everyone was in a quandary. She alleged agencies funded at the 90 to 95 percent level probably would not get 100 percent funding. She further alleged for agencies funded at the 75 percent level it was questionable if it would be cut altogether. She said she would take the position it would not be funded beyond 75 percent. She cited her discussion with Arbe Williams which addressed carry-over funds used in her department. In conclusion, she suggested a piece of legislation with guidelines was needed in the event this happened again. Number 0418 REPRESENTATIVE CAREN ROBINSON wondered about the status of the bill introduced. CHAIR JAMES said a bill had been introduced and was in the House State Affairs Committee, but it was not before them today because it needed to be amended. She said the Administration was preparing a substitute rather than the committee because they had the information. Number 0460 MS. MCCONNELL replied she was happy to make the amendments. However, she said she received information the legislature did not want to hear the bill. Number 0479 CHAIR JAMES suggested including parameters in the revised bill. MS. MCCONNELL said Mr. Katz believed decisions would probably not be made by March 15, 1996. CHAIR JAMES replied the bill should not be reactionary but precedent setting, therefore, more procedural than specific. Number 0502 REPRESENTATIVE ROBINSON agreed a quick response was needed. She questioned if pink slips would be given in the next few weeks. Number 0525 MS. MCCONNELL replied decisions were being made in programs where the funding level was below 95 percent. Layoffs would be necessary for agencies funded at the 85 percent level, for example, for the rest of the year. However, it was part of the legislative budget process to discuss reductions for FY97. Number 0569 CHAIR JAMES said specifics were needed along with parameters and procedures. Number 0588 MS. MCCONNELL wondered if the committee members would like to hear from the departments. CHAIR JAMES called Janet Clark, Director, Central Office, Division of Administrative Services, Department of Health and Social Services. Number 0616 JANET CLARK, Director, Central Office, Division of Administrative Services, Department of Health and Social Services, said this issue was crucial to the department because it received over $400,000,000 in federal funds for various programs. She said the department was tracking this weekly producing a report. The report, she stated, was based on a letter of credit received from the federal government, and if the money was not in the letter of credit it was included in the report even though the funding had been. She said she did not want to impact the state's cash position. Number 0672 CHAIR JAMES responded it was not a problem authorizing funds when there was a cash receivable. However, when there was not a cash receivable, a problem existed because of the possibility the it might be adjusted creating more adjustments elsewhere. She cited medicaid as an example of uncertainty because of changes in the law, and wondered if the changes would be retroactive. Number 0731 MS. CLARK replied the department received quarterly advances for the medicaid program. She cited the department spent over $5 million per week in medicaid payments and any changes would be a result of a policy decision. She further stated the department was in a different position than the Department of Labor, for example, because it received individual grants that went to people. Therefore, decisions affecting benefit levels were needed. There were enough funds to keep the current benefit levels until May 1, 1996. Ms. Clark also said the state could charge the federal government interest for the days cash was not sent, in some situations. Number 0811 REPRESENTATIVE PORTER asked if the department had the authority to reduce a benefit. Number 0819 MS. CLARK said the current benefit levels were stated in statutes. Number 0830 CHAIR JAMES replied there was a different spin on everything and specifics were needed. ADJOURNMENT CHAIR JAMES adjourned the Administration presentation at 10:45 a.m.