SENATE FINANCE COMMITTEE February 16, 2021 9:01 a.m. 9:01:28 AM CALL TO ORDER Co-Chair Stedman called the Senate Finance Committee meeting to order at 9:01 a.m. MEMBERS PRESENT Senator Click Bishop, Co-Chair Senator Bert Stedman, Co-Chair Senator Donny Olson Senator Natasha von Imhof Senator Bill Wielechowski Senator David Wilson MEMBERS ABSENT Senator Lyman Hoffman ALSO PRESENT Neil Steininger, Director, Office of Management and Budget, Office of the Governor; Kris Curtis, Legislative Auditor, Alaska Division of Legislative Audit. PRESENT VIA TELECONFERENCE Lacey Sanders, Administrative Services Director, Department of Education and Early Development, Office of Management and Budget, Office of the Governor; Pat Pitney, Interim President, University of Alaska. SUMMARY SWEEP/REVERSE SWEEP DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT CARES ACT FUNDING FOLLOW UP: UNIVERSITY OF ALASKA ^SWEEP/REVERSE SWEEP 9:03:50 AM NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, discussed the PowerPoint presentation, "State of Alaska; Office of Management and Budget; Constitutional Budget Reserve Sweep and Reverse Sweep; February 16, 2021" (copy on file). He addressed slide 2, "Funds in the Constitution": The Alaska Constitution refers to three distinct funds: ? Permanent Fund (PF) Article IX, Section 15 ?Includes mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses. ?Only the income may be appropriated ?Includes the Earnings Reserve Account (ERA) per Hickel v. Cowper ? Constitutional Budget Reserve Fund (CBR) Article IX, Section 17 ?Includes money received from the termination of administrative and judicial proceedings involving mineral revenues ? General Fund ?Includes money received from taxes, fees, and other sources not constitutionally directed to the CBR or PF ?Includes all designated general fund (DGF) accounts 9:05:41 AM Co-Chair Stedman explained that the constitution specified that all monies be swept to the CBR, if there was a debt on the CBR. He noted that currently $12 million was owed to the CBR. He stressed that at the end of June of the current year, all of the account balances would go into the CBR, leaving zero account balances on the first day of the next fiscal year. He remarked that in order to prevent the zero accounts, there was a measure in the budget to appropriate money back out of the CBR to return the balances. This action requires a three-quarter vote. Mr. Steininger pointed to slide 3, "Constitutional Budget Reserve Fund": The Constitutional Budget Reserve Fund (CBR) was established by constitutional amendment in 1990 in article IX, section 17 of the Alaska Constitution. There are four subsections: ? (a) Revenue into the CBR money received from the termination of administrative and judicial proceedings involving mineral revenues is deposited into the CBR; ? (b) Expenditures from the CBR by majority vote only if "the amount available for appropriation for a fiscal year is less than the amount appropriated for the previous fiscal year" and total appropriations are limited to the amount appropriated in the previous year; ? (c) Expenditures from the CBR by a three-fourths vote of the members of each house the Legislature can appropriate from the fund for any public purpose if such a supermajority vote is obtained; ? (d) Repayment requirement "If an appropriation is made from the budget reserve fund, until the amount appropriated is repaid, the amount of money in the general fund available for appropriation at the end of each succeeding fiscal year shall be deposited in the budget reserve fund. The legislature shall implement this subsection by law." 9:09:08 AM Mr. Steininger looked at slide 4, "Repayment Requirement Commonly Called the 'Sweep'": ? FY1995 to FY2010 CBR debt required repayment ?Peak $5.2B in FY2005 ?Fully repaid in FY2010 ? Current debt began FY2015 ?Greater than $11B currently owed Sweep Effective Dates: ? Effective midnight on June 30 each year ? Reversed, pending three-quarter vote, 12:01 am July 1 Sweep Mechanics: ? Prior year account transactions closed August 31 ? Balances subject to audit Senator von Imhof wondered whether there had always been a three-quarter vote for a reverse sweep annually. Mr. Steininger replied that the sweep for the CBR was not added to the constitution until the 1990s. He explained that, since then, there was always eventually a vote to reverse the sweep. He recalled that there were some times between the end of the fiscal year, and the event of the three-quarter vote. Senator von Imhof noted that the sweep was added to the constitution in 1995, and since then there had a been a three-quarter vote, except the two years prior. Mr. Steininger replied that the three-quarter vote eventually occurred three years prior, so every year the vote occurred. He remarked that there may be a few other years when the vote was delayed past the end of the fiscal year. Co-Chair Stedman recalled that there was a year when the reverse sweep was enacted the following January after the end of the fiscal year. 9:15:17 AM Mr. Steininger highlighted slide 5, "Sweep Application": Subject to Sweep: ? Funds for which the legislature has retained the power to appropriate from and that are not available to pay expenditures without further legislative appropriation ? Funds that list purposes for which money in the fund can be used but still require appropriation to spend Not Subject to Sweep: ? Money in funds that is already validly appropriated to a particular purpose ? Federal funds ? Other trust funds such as the Public Employees Retirement Fund that can only be used for a specific stated purpose under law or held in trust ? Donations for a particular purpose ? Accounts or funds subject to expenditure without further appropriation ? Receipts subject to refund e.g. Alaska Marine Highway, University tuition or student housing Senator Wilson wondered whether there was a court ruling on what accounts were not sweepable. Mr. Steininger responded that there had been minimal discussion of that in the court. He explained that there had been little testing of the measure because it had ultimately always been a reversal of the sweep. Therefore, there was minimal legal testing of the measure. Mr. Steininger pointed to slide 6, "Sweep Reversal": The sweep is a constitutional requirement, the reverse sweep is a policy decision with significant impacts. Section 28(a) of the Governor's proposed FY22 operating budget: ? Sec. 28. CONSTITUTIONAL BUDGET RESERVE FUND. (a) Deposits in the budget reserve fund (art. IX, sec. 17, Constitution of the State of Alaska) for fiscal year 2021 that are made from subfunds and accounts of the operating general fund by operation of art. IX, sec. 17(d), Constitution of the State of Alaska, to repay appropriations from the budget reserve fund are appropriated from the budget reserve fund to the subfunds and accounts from which those funds were transferred. This appropriation is? ? directing all "swept" subfunds to be transferred back to the fund they resided in prior to June 30. ? from the CBR requiring a supermajority vote per Alaska Constitution article IX, section 17(c). ? commonly called the 'reverse sweep.' 9:20:53 AM Mr. Steininger discussed slide 7, "Sweep Impacts": Without enacting reversal: ? 3 Categories of Impact ?High impact Funds with no projected revenues in FY22 ?Impacted programs include scholarships from the higher education fund, the power cost equalization program. ?Medium impact Funds with FY22 revenues less than the amount appropriated for FY22 ?Impacted programs include alcohol safety program, chronic disease prevention, substance abuse grants, domestic violence and sexual assault prevention, Marine Highway System operations, and spill prevention and response. ?No immediate impact Funds without FY22 appropriations reliant on existing balances. ?These funds are used for tracking purposes or as general savings accounts. Examples include cruise ship gambling tax and Alaska Housing Capital Corporation. ?Also includes funds with balances that are already obligated through existing appropriations such as the Alaska comprehensive health insurance fund. 9:25:22 AM Mr. Steininger highlighted slide 8, "Sweep Impacts": Impacts mitigated by enacting section 28(a) of the Governor's proposed FY22 operating budget Senator Olson surmised that the Power Cost Equalization Fund (PCE) was a sweepable fund. Mr. Steininger replied that the PCE was available for appropriation by the legislature, so it was considered a sweepable fund. Senator Olson replied that the legislature's position over recent years was that the PCE was not sweepable, which was based on court proceedings from the early 1990s. He stressed that the legislature had never received any correspondence outlining the position of the recent attorney general claiming that the PCE was a sweepable fund. He wondered whether there was a written legal opinion that went against the legislature's assertion that the PCE was not a sweepable fund. Mr. Steininger replied that he would contact the Department of Law. Senator Olson assumed that there was no written legal opinion that the PCE was a sweepable fund. He remarked that under that opinion, the Earnings Reserve Account (ERA) would also be a sweepable fund. Mr. Steininger responded that the ERA had specific legal guidance from a court case that dictated that the ERA, per Hickel v. Cooper, stay within the Permanent Fund. Therefore the ERA was not a part of the general fund. He stressed that there was not similar guidance to the PCE. 9:30:22 AM Senator Olson requested a written opinion from the Department of Law that the PCE was a sweepable fund. Senator von Imhof remarked that there were competing opinions and analyses in regards to the qualifications. She recalled an opinion from 2019, which stated that the PCE was a sweepable fund. She explained that it was described as a separate fund in statute. She remarked that the Hickel v. Cooper case outlined that the sweepable funds must be in the general fund. She stressed that there were contradictory statements around the qualifications of the sweepable funds, particularly the PCE. She explained that not doing the sweep on the PCE affected $52 million, including fuel subsidies for rural Alaska. Co-Chair Stedman felt that legal opinions within the court could result in some chaos. He stressed that there would be a conversation with the auditor around the issue. Co-Chair Bishop felt that the conversation should include the Technical Vocational Education Program (TVEP) fund. 9:34:56 AM KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF LEGISLATIVE AUDIT, addressed the accounting process of the sweep. Co-Chair Stedman remarked that Ms. Curtis would address the committee again at a later date at the completion of the audit. He wondered whether the balances would be completed in the upcoming week, and Ms. Curtis would return the committee with the findings. Ms. Curtis agreed. 9:39:54 AM AT EASE 9:41:12 AM RECONVENED ^DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT CARES ACT FUNDING 9:41:27 AM LACEY SANDERS, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR (via teleconference), discussed the presentation, "COVID-19 K-12 Federal Relief Funding Overview" (copy on file): ?Coronavirus Aid, Relief and Economic Security (CARES) Act ?Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act Ms. Sanders displayed slide 2, "Coronavirus Aid, Relief and Economic Security; (CARES) Act Update": ? CARES Act was signed into law on March 27, 2020 ? Education Stabilization Fund - $30.75 billion in emergency relief funds 1. Approximately $3 billion for the Governor's Emergency Education Relief Fund (GEER I Fund) 2. Approximately $13.5 billion for the Elementary and Secondary School Emergency Relief Fund (ESSER I Fund) 3. Approximately $14.25 billion for the Higher Education Emergency Relief Fund Ms. Sanders addressed slide 3, "Coronavirus Aid, Relief and Economic Security (CARES) Act Update (con't)": ? Elementary and Secondary School Emergency Relief (ESSER) I Fund State of Alaska's Allocation $38,407,914 ? Local Education Agencies (school districts) minimum allocation $34,567,123 School districts have until September 30, 2022, to obligate funding As of January 29, 2021, school districts requested reimbursement for $11.3 million and $22.8 million has been encumbered for approved school districts budgets based on an approved application ? State Education Agency (DEED) reservation maximum allocation $3,840,791 Of this, $192,040 may be used for Administration ? Governor's Emergency Education Relief (GEER) I Fund State of Alaska's Allocation $6,503,527 ? Governor Dunleavy allocated funding as follows: $3,728,856 for grants to 35 school districts $1,500,000 to the University of Alaska $1,031,920 for competitive grant awards to education and education related entities $200,000 to the Alaska Native Science and Engineering Program 9:45:25 AM Ms. Sanders pointed to slide 4, "Coronavirus Response and Relief Supplemental": Appropriations (CRRSA) Act Update ? CRRSA Act was signed into law on December 27, 2020 Education Stabilization Fund - $82 billion in additional relief funds 1. Approximately $4.1 billion for the Governor's Emergency Education Relief Fund (GEER II Fund) 2. Approximately $54.3 billion for the Elementary and Secondary School Emergency Relief Fund (ESSER II Fund) 3. Approximately $21.7 billion for the Higher Education Emergency Relief Fund Ms. Sanders addressed slide 5, "Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act Update (con't)": ? ESSER II Fund State of Alaska's allocation $159,719,422 ? Local Education Agencies (school districts) minimum allocation $143,747,480 School districts have until September 30, 2023, to obligate funding Application for school districts will be available on February 15, 2021 ? State Education Agency (DEED) reservation maximum allocation $15,173,345 Of this, $789,597 may be used for Administration Expanded list of allowable activities ? Addressing learning loss among students ? Summer programming ? School facility repairs and improvements to reduce the risk of virus transmission ? Improving air quality in school facilities Senator von Imhof appreciated the slide. She noted that her district had received $62 million. She noted that the federal funds could be carried forward. She worried that federal funds could supplant general funds. Co-Chair Stedman spoke to the supplanting of fund and the cash burden. Senator Wielechowski wondered about the administration's response about the use of federal dollars supplanting general funds. Co-Chair Stedman asked whether the funds had a non-supplant provision. Ms. Sanders said that the federal funds had a non-supplant provision. 9:51:22 AM Senator von Imhof requested a copy of the federal guidelines. She wondered what the consequences could be of an inflated budget. She wondered where the administration planned to use the funds. She hoped to avoid a ballooning of the education budget and then the subsequent cutting of that budget. Ms. Sanders agreed to provide the guidelines. Co-Chair Stedman remarked that there could be a conversation about fund balance carry-forwards, and any mechanisms to work with the department on the concern from Senator von Imhof. He pointed to a concern about potential budget balance fluctuations. 9:54:32 AM Ms. Sanders looked at slide 6, "Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act Update (con't)": ? Governor's Emergency Education Relief (GEER) II Fund State of Alaska's allocation $8,191,720 ? Governor's Supplemental allocation $2,824,017 Governor has not determined how funding will be allocated Allowable uses include preventing, preparing for, and responding to COVID- 19 ? Emergency Assistance for Non-Public Schools allocation $5,367,703 Application for Non-Public Schools will be available by February 12, 2021 Of this, $200,000 may be used for Administration Senator Wielechowski queried any legal analysis in light of the constitutional prohibition against using state funds for private educational institutions. Ms. Sanders replied that there was work with the Department of Law to identify that they were federal funds that were provided to schools in an emergency capacity for life, health, safety resources to address the Covid-19 pandemic. Ms. Sanders discussed slide 7, "Total Education Stabilization Funds." She noted that there were several additional documents included in the packets for reference. Ms. Sanders addressed slide 8, "Additional CARES Act Allocations": ? Child Nutrition Programs Awarded $42.2 million for food service programs As of January 29, 2021, $28.3 million has been expended Limited period of availability March 2020 through September 2020 These funds supplanted the DEED federal funds; they were not in addition to the federal funds DEED receives ? Libraries, Archives, and Museums Awarded $66.1 thousand for grants to museums and libraries in Alaska As of January 29, 2021, $63.5 thousand has been awarded ? Alaska State Council on the Arts Awarded $421.5 thousand for grants to Alaskan artists As of January 29, 2021, $385.8 thousand has been awarded 10:02:23 AM AT EASE 10:02:40 AM RECONVENED ^FOLLOW UP: UNIVERSITY OF ALASKA SUBCOMMITTEE OF THE WHOLE 10:02:46 AM PAT PITNEY, INTERIM PRESIDENT, UNIVERSITY OF ALASKA (via teleconference), discussed the remaining slides from the PowerPoint presentation dated February 11, 2021, "University of Alaska - Serving Alaska - Senate Finance Committee - February 11, 2021" (copy on file). Ms. Pitney discussed slide 18, "Students and Employees." She noted that counts were reduced over the previous two years, over ten percent after recent budget uncertainty. 10:06:21 AM Co-Chair Stedman stated that the meeting was working as a University subcommittee of the whole in the current meeting. Senator Olson wondered whether the number of graduates included the Washington, Wyoming, Alaska, Montana, and Idaho (WWAMI) student graduates. Ms. Pitney replied in the affirmative. She stated that the number included everything from the certificate programs to the medical doctor and PHD students. Ms. Pitney showed slide 19, "Enrollment Highlights": ?Enrollment fall 2020 semester: ?Decline less than 10 percent, ?We had projected a 15-30 percent decline due to COVID-19 on top of year over year declines since 2011 ?Enrollment increased in UAF College of Fisheries and Ocean Science, UAF School of Management, UAA College of Health, UAS Sitka and Ketchikan campuses ?Improved freshman retention rates compared to 2018-19 levels ?Enrollment spring 2021 semester (preliminary): ?Applications up 10 percent Admissions up 5 percent ?Enrollment increases in UAF School of Management, UAF Rural College, Alaska College of Education, UAS School of Career Education, and UAA College of Health ?Overall headcount down 9 percent ?Long-term growth in engineering and health care programs to meet state demand ?edX courses focus UAF research strengths ?5,000 learners and scholars from over 120 countries in first four months 10:10:40 AM Senator Wilson wondered whether there could be a detailed outline of the overall enrollment numbers for each program. Ms. Pitney agreed to provide that information. Ms. Pitney reviewed slide 20, "Asset Monetization": ?Reduced owned space (2019-2020) ?Sold 10 facilities (38,000 gross-square feet) ?Demolished 13 aged facilities (28,000 gross- square feet) ?Leasing space to third parties ?95,000 gsf in University Center 50 percent of the available space is leased ?30,000 gsf in the Alaska Airlines Center to aid in community covid-19 response ?Exploring public-private partnership opportunities ?UAA COH Innovation Hub ?UAF to sell excess power and considering other monetization of the plant ?UAF to consider P3 for expanded childcare in Fairbanks for employees and students ?UAF to explore combined heat and power plant asset monetization ?Benefits ?Source of new revenue ?Reduce maintenance costs ?Reduce risk of ownership Ms. Pitney spoke to slide 21, "Administration Review": ?Administrative reviews across the university system ?Analyze roles and responsibilities of each executive/leadership position ?Frame a sustainable, stable, core organization by: ?Identifying opportunities to leverage existing resources ?Identifying potential areas of savings ?Creating administrative cost transparency ?Streamlining and improving back-office processes ?Investing in IT necessary to automate and improve efficiencies ?System Office ?University of Alaska (UA) is a single legal and financial entity created in Alaska's constitution. ?Governed by a Board of Regents, UA is a single employer, and the provider of public higher education in the state. ?The has the fiduciary responsibility for UA as a corporate entity, and to fulfill the Board of Regents' policy and direction. ?The System Office provides central services for efficiency and economies of scale. Programs are operated on a case by case basis. 10:15:03 AM Ms. Pitney discussed slide 22, "System Office Positions (FY14 vs. FY22)," which showed a table in four categories. She explained the details of the functions outlined in the slide. Senator Wilson asked whether the UA system still had paid lobbyists. Ms. Pitney replied that Chad Hutchison was the State Relations Director, which was a position similar to a legislative liaison. She stated that Dustin Bryant was the Federal Relations Director. That position was co-located in the office where the governor's federal relations positions reside. She stated that there were companies that worked with UA at the federal level, particularly related to land grants. Ms. Pitney referenced slide 23, "System Office Funding Comparison," which showed a table outlining the comparisons of the different years' budgets. 10:21:19 AM Senator Wielechowski queried the interest income. Ms. Pitney replied the fees were associated with the system office. She remarked that there was a fee associated with the network. She stated that the interest income on working reserves were accounted within the system office budget. She furthered that total tuition fees across the entire system was approximately $122 million. Ms. Pitney turned to slide 24, "Research": Nationally Competitive High Economic Impact: $160M external funds - ?Arctic ?Infrastructure ?Security and Defense ?Culture and Health ?Energy ?Climate Modeling, Adaption and Mitigation ?Health Research ?Unmanned Vehicles (applications, systems, and policies) ?Fisheries, Ocean Sciences, and the R/V Sikuliaq ?Pilot Safety/FAA Ms. Pitney spoke to slide 25, "University Land Holdings 150k Acres," which showed a pie chart addressing the university lands. Ms. Pitney reviewed slide 26, "UA Land Grant Acreage Comparison," which showed a table pointing to the land grants. She pointed to each portion of the slide. Co-Chair Stedman wondered whether the lang grant had subsurface rights. Ms. Pitney replied in the affirmative. 10:30:39 AM Ms. Pitney showed slide 27, "UA Land Legislation": ?360,000 acres missing from UA's land grant ?Alaska's Congressional Delegation introduced the "University of Alaska Fiscal Foundation Act," that would establish a formal federal program under which the land conveyances would be executed ?UA is working with the Alaska Department of Natural Resources to identify lands suitable for conveyance to the University ?UA is also considering diversifying its real property portfolio including lands that have potential for mineral, oil and gas, timber, and other natural resource values, lands with residential, recreational, or commercial value, and wherever possible, lands that are near communities with a need for expansion or economic development ?UA endowment is $409.5 million ?UA Land Grant Trust Fund $165 million Ms. Pitney looked at slide 34, "Dual Enrollment/Middle College": Partnerships with K-12 districts across Alaska provide a variety of dual enrollment options to meet student and district needs On Campus programs ?UAA Alaska Middle College enrollments are currently 273, an 84.5 percent increase over the life of the program ?UAA Mat Su Middle College has 133 students currently enrolled ?UAF North Star College, a middle college with FNSBSD started in person in fall 2020 with full cohort of 40 senior students. UAF and FNSBSD are working to expand the offering to juniors and seniors. ?UAA ANSEP offers a Middle School Academy, High School Acceleration Academy, and Summer Bridge program ?UAA Kenai Peninsula College JumpStart Program offers juniors and seniors the opportunity to complete up to 30 credits or an associate degree at a discounted rate (program is subsidized by the Kenai Peninsula Borough); KPC has also launched a middle college ?UAS Supporting Transitions and Educational Promise Southeast Alaska (STEPS) grant with the Alaska Association of School Boards ?56 percent of Middle College graduates go on to enroll in a UA degree program "Virtual" Middle College ?The UAF Alaska Advantage program, a "virtual" middle college, is partnered with more than 30 school districts and homeschool programs, UAS also participates Ms. Pitney addressed slide 33, "Workforce Reports." She stated that the reports showed how each industry had degree programs that prepared for the existing jobs. 10:35:33 AM Co-Chair Stedman made a joke about aviation. Ms. Pitney explained that the aviation programs were intensive. Those graduates go straight to work. Co-Chair Bishop noted that the Mining and Petroleum Institute had provided great refresher courses for miners during the Covid-19 pandemic. Ms. Pitney added that the Mining and Petroleum Institute was in partnership with Greenland to assist the communities advance the mine training. Ms. Pitney addressed slide 30, "Bartlett and Moore Hall Modernization and Renewal": --$18.65M Bartlett and Moore are UAF's two largest residence halls. The halls are highly utilized and showing a half century of wear. This project will renew the sanitation infrastructure of each building, update finishes in resident rooms, and modernize the student experience. The sanitary sewer lines within each building are at risk of imminent total system failure that would require UAF to close one or both halls with no notice to occupants should a failure occur. Over the last four years, plumbing that supports the restrooms has failed a number of times, leaving portions of each building without sanitation facilities while repairs are completed. Work will completely demolish stacked restrooms on all floors, rebuild the plumbing, electrical, and ventilation systems, and reconstruct code compliant restroom facilities on each floor. The project will also replace outdated and worn flooring and provide fresh paint in each hall. These facilities require these critical updates in order to serve as an attractive option for enrolling new students with a promise of safe and modern living conditions. 10:40:18 AM Ms. Pitney looked at slide 31, "UAA Building Energy Performance Upgrades": --$10.9M This energy savings performance project will incorporate mechanical and electrical system improvements to three critical facilities, the Professional Studies Building (PSB), the Wendy Williamson Auditorium (WWA), and the Social Sciences Building (SSB). ?PSB scope will include LED lighting upgrades, electrical safety upgrades, boiler replacement, replacement of the existing Air Handling Unit Fan with a Fan Wall system, and convert outdated pneumatic controls to DDC. ?WWA scope will include LED Lighting upgrades, electrical safety upgrades, conversion of pneumatic controls to DDC, and hot water pump replacements. ?SSB scope will include LED lighting conversion, electrical safety upgrades, the addition of hydronic heating to the 2nd and 3rd floors of the building, conversion of pneumatic controls to DDC, and fin tube repairs. ADJOURNMENT 10:46:33 AM The meeting was adjourned at 10:46 a.m.