MINUTES SENATE FINANCE COMMITTEE January 25, 1995 9:07 a.m. TAPES SFC-95, #1, Side 2 (Malfunction) SFC-95, #3, Side 1 (000-242) CALL TO ORDER Senator Steve Frank, Co-chair, convened the meeting at approximately 9:07 a.m. PRESENT In addition to Co-chair Frank, Co-chair Halford and Senators Phillips and Sharp were in attendance. Senator Donley and Senator Rieger arrived soon after the meeting began. Senator Zharoff arrived as it was in progress. ALSO ATTENDING: Senator Green and Representative Davies; Mike Greany, Director, Legislative Finance Division; Kathryn Daughhetee, Fred Fisher, Susan Taylor, Virginia Stonkus, and Jetta Whittaker, fiscal analysts, Legislative Finance Division; and aides to committee members and other member of the Legislature. SUMMARY INFORMATION Presentation by the Legislative Finance Division FY 95 Spending Plan Update and Overview of Significant Changes to Date Between FY 95 and FY 96 Operating Budgets (Malfunction on recording on SFC-95, Tape 1, Side 2. This portion of the meeting was reconstructed from shorthand notes.) MIKE GREANY, Director, Legislative Finance Division, began his presentation by introduction of the division fiscal analysts who advised of their responsibility for the following budget areas: Susan Taylor - Dept. of Health and Social Services Dept. of Administration Kathryn Daughhetee - Court System, Dept. of Law, Dept. of Public Safety, Dept. of Corrections Jetta Whittaker - Dept. of Commerce and Economic Development, Dept. of Revenue Fred Fisher - Dept. of Transportation and Public Facilities, Dept. of Natural Resources, Dept. of Military and Veterans' Affairs, Capital Budget Virginia Stonkus - Dept. of Fish and Game, Dept. of Environmental Conservation, Operating Budget Plan Dana LaTour - University, Dept. of Education, Dept. of Labor, Dept. of Community & Regional Affairs Mike Greany - Governor and Legislature (Senator Rieger and Senator Donley arrived at this time.) Mr. Greany first directed attention to a handout entitled "FY 95 Legislative Spending Plan." He explained that items set forth in the column entitled "Adjournment Plan" reflect the legislative budget, including vetoes by the Governor. Amounts listing in the right column, "January, 1995, Update," are based on the most recent Dept. of Revenue numbers presented by Chuck Logsdon. Items shown in bold reflect changes following adjournment. Mr. Greany noted that since oil prices have averaged $16.22 rather than the projected $14.00, the anticipated draw on the Constitutional Budget Reserve Fund (CBRF) will be adjusted from $350 million to approximately $129 million. That figure will change over the coming months in response to changes in oil prices. Speaking to supplemental funding for FY 95, Mr. Greany pointed to requests over the last six years ranging from $37.7 million (last year) to a high of $145 million (an average of $83 to $84 million). The list of potential supplementals totals $78 million. Governor Knowles has indicated need for at least $59 million. Whatever the supplemental ultimately totals, it represents another draw on the CBRF. Co-chair Frank asked if moneys from AHFC, the investment loss fund relating to Executive Life, and AIDEA had been transferred. Mr. Greany said that transfers are on a quarterly schedule. The first transfer has been made, and the second is in progress. In response to a question from Senator Rieger, Mr. Greany advised that the FY 94 draw on the CBRF totalled $1.4 billion. That is the amount that appears on the FY 94 financial statement as a liability to be repaid from the general fund. Draws from the CBRF are loans, not grants. There is an existing $1.4 billion obligation. Senator Rieger voiced his understanding that, technically, the CBRF has the first call on available moneys. Mr. Greany concurred, advising of need for analysis of the issue and decision making by both the administration and the legislature. A reading of the judge's decision indicates that, at some point, certain accounts in the general fund would be "subject to a sweep" to repay the obligation. There will probably be need for future legal guidance in this area. Mr. Greany advised that he and the legislative auditor are reviewing all funds and accounts and making a list of what would be subject to the sweep and what would not. As an example, Mr. Greany indicated that the marine highway stabilization fund, which funds one-half of the operation of the ferry system, would be included. For the former response fund which was broken into a prevention account and a response account, it appears the prevention side would be subject while the response side would not. Determinations such as the foregoing must be made on a case- by-case basis, and agreements must be achieved. Senator Rieger inquired concerning the status of the permanent fund earnings reserve. Mr. Greany voiced his understanding that the earnings reserve would not be subject to sweep. He acknowledged a question of consistency associated with that determination and advised that it serves as an example of need for clarification. Directing attention to page 3 of the handout, Mr. Greany explained that it presents updated numbers for the CBRF. He pointed specifically to the $1.3 billion in additional settlements and advised of two additional payments totalling $700 million, resulting from the British Petroleum settlement. The division is projecting an FY 95 balance of $1.6 billion for the fund. That is in addition to the $1.4 billion "IOU" to be paid by the general fund. Co-chair Frank inquired concerning interest retained by the CBRF, projected for FY 96. Mr. Greany acknowledged that there are interest earnings and said he would provide the requested numbers. Directing attention to page 4 of the handout, Mr. Greany noted fund balances for the Mental Health Trust Income Account, CBRF, Permanent Fund Earnings Reserve, Science & Technology Endowment Fund, Investment Loss Trust Fund, AETNA Reserve, Alaska Housing Finance Corporation (AHFC), and Alaska Industrial Development and Export Authority (AIDEA). Discussion followed between Co-chair Frank and Mr. Greany concerning the impact of recent bond market changes on state revenues. Further discussion followed regarding the financial difficulties in Orange County California as well as interest on the part of both Alaska and California in resolution of finances associated with Executive Life. Mr. Greany suggested that the Attorney General and those who administer the state supplemental benefits system be asked for an update of the situation associated with the Investment Loss Trust Fund. (The remainder of the minutes reflect transcription of tape SFC-95, #3, Side 1) Speaking to the AETNA Reserve, Mr. Greany explained that the $12.1 million reflects excess health insurance benefit contributions. Last year, the legislature appropriated $8 million from the fund. Governor Hickel subsequently vetoed that appropriation. Senator Frank asked if the Governor provided an associated veto message. Mr. Greany advised that he would research the question. Senator Rieger asked if the balance represents the differences between the standard accrual per employee per month and claims paid out. Mr. Greany said that he would consult with the department and return an answer to committee. Mr. Greany next pointed to the estimated $335 million AHFC reserve account. Last year the legislature asked the Legislative Audit Division to review potential cash balances--amounts in addition to bond obligations. He observed that the state has been sensitive to "not wanting to do or appear to do anything that could affect our bond rating or how Wall Street perceives our ability to manage our finances." Legislative Audit advised that $535 million could be available over the next two to three years. The legislature appropriated $200 million for FY 95. Legislative Audit is again reviewing AHFC to update the available balance. Figures should be available within the next few weeks. Speaking to AIDEA, Mr. Greany characterized the $17 million balance as a "squishy number." He said that AIDEA financial statements should be read with caution. A $1.50 reserve must be maintained for every $1.00 loaned by the authority. In addition, proposals presently "in the works" could impact the balance sheet. Mr. Greany next directed attention to an additional handout entitled "Formula Funded Programs." He explained that it attempts to lay out major differences apparent in the FY 96 "Hickel" budget. Analysis up to this time has been limited to formula programs since they are the areas in which the largest dollar amount increases will appear. Funding is largely driven by statute. Unless Governor Knowles proposes underfunding or statutory changes, numbers set forth on the handout will be accurate since they reflect statutory requirements. The second page of the handout contains a more detailed explanation of differences between FY 95 and 96. Senator Donley referenced the $4 million increase in adult public assistance and asked if it represents a projection or actual expenditure. Mr. Greany responded that it reflects a projection for FY 96. Funding for FY 95 and 96 represents "a moving number based on caseload estimates. This program has traditionally received supplemental funding. Senator Donley suggested that warnings be sent to the department that it should not expect "business as usual." In response to a question from Senator Rieger, Mr. Greany advised of an interim project which made five-year projections on a program-by-program basis for formula programs. Those projections include caseloads, inflation, etc. The division is now comparing FY 96 projections to budget numbers. Senator Zharoff inquired concerning the status of the longevity bonus program. Mr. Greany advised of ongoing litigation to determine whether legislation phasing out the bonus is legal. Numbers set forth at this time assume that the phase out will occur. Senator Sharp pointed to the $50 million difference for health, education, and social services between FY 95 and 96 and voiced his understanding that the difference would be reduced by supplemental funding. Mr. Greany concurred. He further advised that the supplemental will also raise a question concerning whether higher FY 95 expenditures will carry into FY 96 as well. Senator Rieger inquired concerning the Alaska Debt Retirement Fund. Mr. Greany advised of a two-step debt service process for both general obligation and school debt reimbursement. A general fund appropriation is made into the debt retirement fund. Subsequent appropriations are then made from that fund to specific debt service. That allows the fund to accumulate balances if total amounts appropriated for debt service are not needed. Last year, the need for school debt retirement was $2.5 million less than anticipated. The $2.5 million was then applied as an offset against the state's general obligation bond indebtedness. Senator Zharoff inquired concerning the percentage of reduction in municipal assistance and revenue sharing. VIRGINIA STONKUS, fiscal analyst, Legislative Finance Division, responded "less than 4%." ADJOURNMENT There being nothing further to come before committee at this time, the meeting was adjourned at approximately 9:40 a.m.