Legislature(2009 - 2010)HOUSE FINANCE 519

02/09/2010 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 325 APPROP: DEFERRED MAINTENANCE/REPLACEMENT TELECONFERENCED
Scheduled But Not Heard
*+ HB 326 SUPPLEMENTAL/CAPITAL/OTHER APPROPRIATIONS TELECONFERENCED
Heard & Held
+ Overviews by Office of Management and TELECONFERENCED
Budget: Operating Appropriations; Capital
and Deferred Maintenance Appropriations
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 326                                                                                                            
                                                                                                                                
     "An  Act  making  supplemental  appropriations,  capital                                                                   
     appropriations,   and  other  appropriations;   amending                                                                   
     appropriations;    repealing   appropriations;    making                                                                   
     appropriations  to capitalize  funds; and providing  for                                                                   
     an effective date."                                                                                                        
                                                                                                                                
Co-Chair  Hawker  reviewed  generalities   of  the  technical                                                                   
changes of the working draft.                                                                                                   
                                                                                                                                
Co-Chair  Stoltze   MOVED  to  ADOPT  CS  HB   326(FIN),  26-                                                                   
GH2827\R, Kane,  2/8/10, as a  working document.  There being                                                                   
NO OBJECTION, it was so ordered.                                                                                                
                                                                                                                                
Co-Chair  Hawker  spoke  to committee  plans  to  review  the                                                                   
legislation, beginning with an overview.                                                                                        
                                                                                                                                
1:42:43 PM                                                                                                                    
                                                                                                                                
Co-Chair Hawker  highlighted the  two pages of  ratifications                                                                   
at the end of  the document and emphasized  the importance of                                                                   
discussing the issues.                                                                                                          
                                                                                                                                
KAREN  REHFELD, DIRECTOR,  OFFICE OF  MANAGEMENT AND  BUDGET,                                                                   
OFFICE OF THE  GOVERNOR, provided a sectional  analysis of HB
326. She pointed  out that the largest component  of the bill                                                                   
consisted  of   two  sections  putting  money   into  savings                                                                   
accounts, including  a request  to deposit $1.1  billion into                                                                   
the public education  fund in Section 12(a),  and a provision                                                                   
to  repay the  constitutional  budget reserve  (CBR) fund  in                                                                   
17(a).                                                                                                                          
                                                                                                                                
Ms.  Rehfeld specified  that Section  1  consisted mostly  of                                                                   
the operating  budget requests, including  formula components                                                                   
related  to   Medicaid  and  $35.4   million  for   the  fire                                                                   
suppression   supplemental.  Agency   operating   non-formula                                                                   
items total nearly $32 million.                                                                                                 
                                                                                                                                
1:46:00 PM                                                                                                                    
                                                                                                                                
Ms.  Rehfeld  described  Section  2  as  a  summarization  of                                                                   
funding sources  by agency. She  remarked that the  Office of                                                                   
Management  and Budget (OMB)  carefully reviews  supplemental                                                                   
requests  from  departments  and  asks  whether  the  request                                                                   
could  be  addressed in  the  next  year's budget.  Some  are                                                                   
already  incorporated into  the next year's  budget in  order                                                                   
to correct  funding  authorization. In  other areas,  changes                                                                   
are being considered  for budget amendments due  February 17,                                                                   
including  items  from the  Office  of Public  Advocacy,  the                                                                   
Public  Defender Office,  inmate  health  care, and  Medicaid                                                                   
components.                                                                                                                     
                                                                                                                                
Ms.   Rehfeld   spoke   to   Section    3,   which   includes                                                                   
appropriations  for  capital  projects.  She  parenthetically                                                                   
noted  one capital  item in  Section 11.  Section 4  contains                                                                   
the summary of funding sources.                                                                                                 
                                                                                                                                
1:48:08 PM                                                                                                                    
                                                                                                                                
Ms.  Rehfeld  highlighted   Section  5  as  a   new  language                                                                   
section.  She  explained  that   the  state  was  allowed  to                                                                   
utilize  a  higher  reimbursement  rate  for  Federal Medical                                                                   
Assistance Percentage (FMAT) under the American  Recovery and                                                                   
Reinvestment  Act  (ARRA).  However, the  higher  rate  comes                                                                   
with  requirements: the  Medicaid program  cannot be  changed                                                                   
and the savings  cannot be put into a savings  fund. Guidance                                                                   
from the  U.S. Department  of Human  Health and Services  and                                                                   
discussions with  the Alaska Department  of Law (DOL)  led to                                                                   
inclusion  of  language  in  the  bill  acknowledging  higher                                                                   
general  fund relief  as  well as  increased  costs that  the                                                                   
general fund savings will help cover.                                                                                           
                                                                                                                                
Co-Chair Hawker  added that  the item  meant the state  would                                                                   
receive $100 million that it could allocate.                                                                                    
                                                                                                                                
Ms. Rehfeld  turned to Section  6, a $3.3 million  request to                                                                   
implement  the interest  arbitration  from a  March 19,  2009                                                                   
decision   regarding   the   Alaska   Correctional   Officers                                                                   
Association.                                                                                                                    
                                                                                                                                
Co-Chair  Hawker  noted  appreciation for  inclusion  of  the                                                                   
item in the bill.                                                                                                               
                                                                                                                                
Ms.  Rehfeld  explained  Section  7  as  $180,000  for  pupil                                                                   
transportation costs  for an Alaskan  school for the  deaf in                                                                   
Anchorage.                                                                                                                      
                                                                                                                                
Representative  Doogan   asked  why  the  item   was  in  the                                                                   
supplemental  budget.   Ms. Rehfeld explained  that the  item                                                                   
addressed the transportation  needs of a deaf  student in the                                                                   
Mat-Su  area; OMB  had  not been  aware  of  the issue  until                                                                   
after  the  FY  10  budget was  passed.  The  item  would  be                                                                   
incorporated   into  the   base   for  pupil   transportation                                                                   
services in the future.                                                                                                         
                                                                                                                                
1:52:08 PM                                                                                                                    
                                                                                                                                
Representative  Austerman  highlighted  that the  item  would                                                                   
increase the base for FY 11 and FY 12.                                                                                          
                                                                                                                                
Ms. Rehfeld noted  that Section 9 corrected  language related                                                                   
to gas pipeline  training. She described Section  10, $28,000                                                                   
for paying  settlements  for DOL; she  assured the  committee                                                                   
that  they  would   be  informed  of  other   judgments.  She                                                                   
explained that Section  11 would allow the state  to purchase                                                                   
wildfire fighting aircraft.                                                                                                     
                                                                                                                                
Representative Gara  received clarification about  an item in                                                                   
Section 8.                                                                                                                      
                                                                                                                                
Ms. Rehfeld turned  to several fund transfers  in Section 12:                                                                   
12(a)  is a  deposit into  the public  education fund,  12(b)                                                                   
transfers  $79,000  from the  Alaska  Industrial  Development                                                                   
and  Export Authority  (AIDEA)  revolving  loan  fund to  the                                                                   
small  business  economic development  revolving  loan  fund,                                                                   
and  12(c) is  a  $5 million  general  fund  transfer to  the                                                                   
disaster relief fund.                                                                                                           
                                                                                                                                
Co-Chair  Hawker asked  for clarification  regarding  Section                                                                   
12(a). Ms.  Rehfeld responded that  the FY 10 budget  was not                                                                   
able  to make  a  deposit into  the  fund until  the  revenue                                                                   
picture improved.  She added that  the deposit  would forward                                                                   
fund education for FY 11.                                                                                                       
                                                                                                                                
Co-Chair Hawker  emphasized that appropriations  would not be                                                                   
duplicated; the item  was a response to the failure  to get a                                                                   
CBR vote the previous year.                                                                                                     
                                                                                                                                
1:55:19 PM                                                                                                                    
                                                                                                                                
Representative Gara  queried the forward funding  amount. Ms.                                                                   
Rehfeld responded  that the item incorporates  the third year                                                                   
of  the three-year  funding plan.  She noted  a base  student                                                                   
allocation  (BSA)   increase  of  $100  and  that   the  item                                                                   
includes  the  intensive  student   BSA.  There  is  also  an                                                                   
increment  for implementing  district  cost  factors. All  of                                                                   
the components in  the FY 11 foundation formula  are included                                                                   
in the deposit amount.                                                                                                          
                                                                                                                                
Ms.   Rehfeld  explained   that  Section   13  consisted   of                                                                   
ratification,    sometimes     called    "zero    balancing."                                                                   
Ratifications  are   requests  for  authorization   to  cover                                                                   
expenditures that  have already  occurred and resulted  in an                                                                   
over-expenditure  of  an  appropriation.   The  situation  is                                                                   
usually a  result of uncollectable  federal revenue  sources;                                                                   
the ratification  provides  the state  with the authority  to                                                                   
close the prior appropriations out.                                                                                             
                                                                                                                                
Ms.   Rehfeld  emphasized   that  there   is  no   additional                                                                   
expenditure  of cash  in the current  year  and that OMB  has                                                                   
worked  hard with  agencies to  clean out  the accounts.  She                                                                   
acknowledged  that  the size  of  some of  the  ratifications                                                                   
have  raised   questions.  She   highlighted  larger   items,                                                                   
beginning  with  $10.3  million  for  fire  suppression.  She                                                                   
referred   to  an   annual   base  appropriation   for   fire                                                                   
suppression;  the  state  can   never  fully  anticipate  the                                                                   
extent of  need. For the past  decade, there has been  a base                                                                   
appropriation,  and  then  as  the  fire  season  progresses,                                                                   
estimates  are  received  monthly   from  the  Department  of                                                                   
Natural  Resources (DNR)  of actual  costs.  The $35  million                                                                   
request for fire  suppression in the FY 10  supplemental bill                                                                   
is  based on  the DNR  estimate  of current  year costs.  The                                                                   
$10.3  million  represents  a  ratification  of  expenditures                                                                   
that  occurred   between  the   time  that  the   legislature                                                                   
adjourned and the  fire season in 2009. She  acknowledged the                                                                   
significance of the amount.                                                                                                     
                                                                                                                                
1:59:15 PM                                                                                                                    
                                                                                                                                
Ms.  Rehfeld   described  another  significant   ratification                                                                   
amount  for the  Department  of  Health and  Social  Services                                                                   
(DHSS), $7.3  million for  uncollectable revenue  for several                                                                   
programs.  She  reported  that DHSS  has  identified  several                                                                   
issues  with  its revenue  accounting  and  are  implementing                                                                   
controls  to address  the challenges.  She  noted changes  in                                                                   
specific programs  to address the appropriate  revenue source                                                                   
in the FY  10 supplemental and  in the FY 11 budget  in order                                                                   
to  address the  problem.  She pointed  to  clean-up that  is                                                                   
part of the  ratification process. Approximately  $409,000 of                                                                   
the  ratifications in  the bill  involves  the Department  of                                                                   
Corrections  (DOC), which  had underestimated  what would  be                                                                   
collected  from the  federal government  for housing  federal                                                                   
prisoners.                                                                                                                      
                                                                                                                                
Ms.  Rehfeld  described  Section  14 as  a  small  correction                                                                   
related  to DOL  to address  restitution  in juvenile  cases.                                                                   
Section   15   relates   to   shifting   funding   from   the                                                                   
international   airport   revenue   fund   to   the   airport                                                                   
construction  fund  in  order  to  minimize  customer  costs.                                                                   
Section  16 is  the extension  of the  appropriation for  in-                                                                   
state  gas, which  is slated to  end February  28, 2010;  the                                                                   
provision would  extend the date  to June 30, 2010.  The work                                                                   
is on-going.  She pointed  to a request  for $6.5  million in                                                                   
the  FY  11  budget  for  continuing  work  on  the  in-state                                                                   
gasline.                                                                                                                        
                                                                                                                                
Co-Chair  Hawker explained  that  the project  had  commenced                                                                   
under Harry  Noah's supervision;  the Senate  had decided  to                                                                   
appropriate money  only through February and come  back for a                                                                   
supplemental.  He added that  the administration  had assured                                                                   
that  in-state   gasline  efforts  would  continue   to  move                                                                   
forward.                                                                                                                        
                                                                                                                                
Ms. Rehfeld  noted that  work would  be continued within  the                                                                   
limitations   of  the  appropriation.   She  emphasized   the                                                                   
importance  of getting  the  legislature's  approval for  the                                                                   
extension.                                                                                                                      
                                                                                                                                
2:03:38 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze relayed a story to emphasize the point.                                                                        
                                                                                                                                
Ms.  Rehfeld explained  that  Section 17  is  related to  the                                                                   
constitutional  budget reserve;  17(a) would allow  repayment                                                                   
of  $402 million  that  has  been  withdrawn from  the  fund,                                                                   
17(b) authorizes  drawing from  the statutory budget  reserve                                                                   
if  revenues  could not  cover  expenditures  in FY  10;  and                                                                   
17(c)  is a  fund source  switch that  manages funds  through                                                                   
the general fund.                                                                                                               
                                                                                                                                
Co-Chair Hawker  underlined that the state would  have repaid                                                                   
all constitutional  obligations to  the CBR at  approximately                                                                   
$5.5 billion. Ms. Rehfeld concurred.                                                                                            
                                                                                                                                
Ms.  Rehfeld  continued  with Section  18,  lapse  provisions                                                                   
related  to  capital  projects. Section  19  repeals  Section                                                                   
43(c), also  known as last  year's 17(b) provision,  which is                                                                   
consistent with the objective to repay the CBR.                                                                                 
                                                                                                                                
Co-Chair Hawker  acknowledged past discussion  and emphasized                                                                   
his concurrence that the provision was unnecessary.                                                                             
                                                                                                                                
Ms.  Rehfeld   concluded  with   Section  20,  an   immediate                                                                   
effective  date  for  Section  7,  the  pupil  transportation                                                                   
appropriation,  and Section  21,  the effective  date of  the                                                                   
act.                                                                                                                            
                                                                                                                                
2:07:15 PM                                                                                                                    
                                                                                                                                
Representative   Doogan   asked  about   appropriations   for                                                                   
uncollectable funds.  Ms. Rehfeld responded that  the largest                                                                   
component was  under school-based claims in  the supplemental                                                                   
and the FY 11 request.                                                                                                          
                                                                                                                                
2:09:31 PM                                                                                                                    
                                                                                                                                
Representative Austerman  queried Section 10  regarding funds                                                                   
for  DOL for  judgments and  settlements.  He referenced  the                                                                   
Carlson case and  wanted to know whether the  amount would be                                                                   
covered  in the  current  year.  Ms. Rehfeld  responded  that                                                                   
every effort  was being  made to  resolve the Carlson  issue.                                                                   
She acknowledged  the continuing growth of the  interest. She                                                                   
reported that  updated information  regarding the  case would                                                                   
be forwarded to the committee as it came from DOL.                                                                              
                                                                                                                                
Representative  Austerman  anticipated daily  interest  costs                                                                   
of  $20,000 and  expressed  frustration.  Ms. Rehfeld  echoed                                                                   
frustrations  and stated  that the intent  was resolution  of                                                                   
the issue.                                                                                                                      
                                                                                                                                
Co-Chair Hawker  assured the committee  that the  issue would                                                                   
be    addressed.    Representative    Austerman    reiterated                                                                   
frustrations.                                                                                                                   
                                                                                                                                
2:12:30 PM                                                                                                                    
                                                                                                                                
Representative  Gara requested details  on the Carlson  case.                                                                   
He believed  the court  was going  through a routine  request                                                                   
for reconsideration.                                                                                                            
                                                                                                                                
Co-Chair  Hawker  turned  to the  subject  of  ratifications,                                                                   
which  begin on  line  119  (page 23  of  25 of  the  "FY2010                                                                   
Supplemental Requests"  spreadsheet, copy on file).  He noted                                                                   
that  the first  item related  to DNR  fire suppression.  Ms.                                                                   
Rehfeld clarified that the amounts were late FY 09 money.                                                                       
                                                                                                                                
Co-Chair Hawker stated  that the money was already  spent and                                                                   
emphasized  that there  was  no authority  for  the money  to                                                                   
have  been  spent.  The  ratifications   would  sanction  the                                                                   
expenditures retroactively.                                                                                                     
                                                                                                                                
Ms.  Rehfeld  pointed out  that  in  some areas  the  process                                                                   
could   not  be   avoided,  particularly   related  to   fire                                                                   
suppression.  She explained  that when  a certifying  officer                                                                   
gets a document,  there is a budget and an  authorization for                                                                   
valid  expenditures to  be  charged against.  The  difficulty                                                                   
sometimes lies in collecting the revenue.                                                                                       
                                                                                                                                
2:18:15 PM                                                                                                                    
                                                                                                                                
KIM  GARNERO, DIRECTOR,  DIVISION OF  FINANCE, DEPARTMENT  OF                                                                   
ADMINISTRATION,   testified   that  out   of   the  list   of                                                                   
ratifications  in   the  bill,  only  $628  was   related  to                                                                   
expenditure  coding  problems.  The  rest  of  the  requested                                                                   
ratifications are  for revenues which are  now uncollectable.                                                                   
At the  time the  expenditures were  made, the  corresponding                                                                   
revenues  were   expected  to  be  collected.   However,  the                                                                   
receivables have been deemed uncollectable.                                                                                     
                                                                                                                                
Ms. Garnero  explained  that the $481,000  related to  access                                                                   
cleanup  is an  inception-to-date review  at all  receivables                                                                   
in  the state's  25-year-old accounting  system  to find  out                                                                   
which ones are  uncollectable. She was pleased  to learn that                                                                   
the amount was less than one-half million dollars.                                                                              
                                                                                                                                
Co-Chair  Hawker acknowledged  that amounts  as small  as one                                                                   
cent were  listed in the  reconciliation. He pointed  to line                                                                   
136 for  the DOC  Anchorage Correctional  Complex; the  state                                                                   
expected more money  from the federal government  than it was                                                                   
able to collect.  He stated that the expenditures  should not                                                                   
have been  made without  the resources  available make  them.                                                                   
He stated that there was not authority.                                                                                         
                                                                                                                                
Co-Chair  Hawker asked  about appropriation  numbers on  line                                                                   
136 and wondered  if the issues were from FY  05. Ms. Garnero                                                                   
responded  in the  affirmative; the  receivable was  detected                                                                   
as  being  uncollectable  as part  of  the  inception-to-date                                                                   
review of all receivables in the accounting system.                                                                             
                                                                                                                                
Co-Chair  Hawker  stressed that  the  amount was  five  years                                                                   
old.  Ms.  Garnero  detailed   that  the  state's  accounting                                                                   
system is good  at tracking expenditures but  was weaker when                                                                   
accounting  for revenues.  Revenues were  recorded for  items                                                                   
in FY 05  that have stayed  there until someone asked  if the                                                                   
amount  was collectable.  She added  that the  amount is  not                                                                   
collectable five  years later, and  the state has  written it                                                                   
off.                                                                                                                            
                                                                                                                                
Co-Chair  Hawker   questioned  the  process  and   asked  why                                                                   
receivables  were  not  reviewed. Ms.  Garnero  replied  that                                                                   
Division of Finance  is implementing an annual  review of all                                                                   
receivables  for agencies,  which has  not been  done in  the                                                                   
past as part of the comprehensive annual report.                                                                                
                                                                                                                                
2:23:00 PM                                                                                                                    
                                                                                                                                
Co-Chair Hawker  reminded the  committee that amounts  in the                                                                   
budget  are  truncated  to the  thousands;  however,  in  the                                                                   
ratifications  section, the  amounts are  listed down  to the                                                                   
penny.                                                                                                                          
                                                                                                                                
Representative   Gara  asked   for  clarification   regarding                                                                   
ratification  funds.    Ms. Rehfeld  replied  that  when  the                                                                   
legislature ratifies  expenditures, it gives  the departments                                                                   
the  authority to  close out  appropriations with  shortfalls                                                                   
in the prior year.                                                                                                              
                                                                                                                                
Representative  Gara  asked where  the  money comes  from  to                                                                   
fund  the  ratifications.  Ms. Garnero  delineated  that  the                                                                   
accounting  system controls  expenditures by  appropriations;                                                                   
most  appropriations   are  not  purely  general   funds  but                                                                   
include  some  revenue  collections.  The  accounting  system                                                                   
controls  for  the collections  with  a  tolerance,  allowing                                                                   
expenditure  of funds  before  they are  collected.  However,                                                                   
most  of  the  items  have  receivables   booked,  meaning  a                                                                   
revenue  was  billed  for  some  party  and  the  departments                                                                   
expected to be  able to collect the revenues.  Shortfalls are                                                                   
caused when the revenues are no longer collectable.                                                                             
                                                                                                                                
Ms. Garnero  clarified  that there will  be an  appropriation                                                                   
for  the  ratification,  but no  additional  spending;  there                                                                   
must be  an appropriation  to drive  the uncollected  balance                                                                   
to zero.                                                                                                                        
                                                                                                                                
2:26:22 PM                                                                                                                    
                                                                                                                                
Representative   Austerman   referenced   line   131   [DHSS,                                                                   
Medicaid  State Programs],  $1,380,000 from  FY 04. He  asked                                                                   
whether the  state has been trying  to collect the  money for                                                                   
six  years or  if it  never expected  to get  the funds.  Ms.                                                                   
Garnero responded  that she  could not speak  to the  item as                                                                   
it was not  part of the accounting systems  inception-to-date                                                                   
clean-up.  She noted  that  individual  departments bill  for                                                                   
and collect revenues.                                                                                                           
                                                                                                                                
Co-Chair  Hawker   requested  waiting  until  later   in  the                                                                   
meeting to  speak to DHSS issues.  He asked whether  the fire                                                                   
suppression  ratification was  unusually  large. Ms.  Rehfeld                                                                   
offered to  get more  history. She  referred to the  boundary                                                                   
fires  in 2004,  which had  also  resulted in  ratifications.                                                                   
Co-Chair Hawker  wanted the committee to have  the underlying                                                                   
facts related to the ratification.                                                                                              
                                                                                                                                
Co-Chair Hawker  explained that  the committee is  accustomed                                                                   
to  seeing a  limited number  of ratifications;  there is  an                                                                   
unusual  amount  in the  current  bill. He  acknowledged  the                                                                   
significance  of the clean-up  resulting  in the many  items,                                                                   
including  the   largest  at   $409,000  for  the   Anchorage                                                                   
Correctional Complex. Ms. Garnero agreed.                                                                                       
                                                                                                                                
Co-Chair   Hawker  queried  the   relationship  between   the                                                                   
Division  of Finance and  the agencies.  Ms. Garnero  replied                                                                   
that she  had served  as a finance  officer in a  department;                                                                   
her experience  was that the  balancing of appropriations  to                                                                   
get  to revenue  collections and  expenditure  authorizations                                                                   
is intensely  done at the  end of the  fiscal year,  and then                                                                   
the process  is done. She  thought there  had been a  hole in                                                                   
the  central  role  of  the Division  of  Finance  in  asking                                                                   
agencies  to look  back at  the receivables  recorded in  the                                                                   
accounting system  and continuing  to either collect  them or                                                                   
get them  written off.  She stated  that after  the end  of a                                                                   
fiscal year, not  much can be done unless the  department can                                                                   
go back  to the billed  party and get  the money.  Often once                                                                   
grants  are closed,  the department  will have  uncollectable                                                                   
receivables and  will have to  ask for authorization  through                                                                   
the ratification process.                                                                                                       
                                                                                                                                
Co-Chair Hawker  questioned the new controls that  were being                                                                   
implemented to  mitigate the  problem. Ms. Garnero  responded                                                                   
that  the controls  will  prevent  the delay  in  identifying                                                                   
uncollectable receivables.                                                                                                      
                                                                                                                                
Co-Chair Hawker pointed  out that when an agency  reports the                                                                   
problem in a  timely manner, the legislature  can communicate                                                                   
with  the agencies.  He  wanted to  know  how agencies  could                                                                   
miscalculate  to  the extent  the  committee was  seeing.  He                                                                   
questioned  who  was culpable.  He  noted  that he  wanted  a                                                                   
conversation  with   DOC  and  Mr.  Peeples   [regarding  the                                                                   
Anchorage  Correctional  Complex   ratification]  before  the                                                                   
process was over.                                                                                                               
                                                                                                                                
2:32:23 PM                                                                                                                    
                                                                                                                                
Representative   Kelly   reported   that  the   process   was                                                                   
different in the private sector.                                                                                                
                                                                                                                                
Co-Chair  Hawker verified  that the Division  of Finance  has                                                                   
implemented   procedures  to   rectify  the  situation.   Ms.                                                                   
Garnero  confirmed   that  the  division  will   be  annually                                                                   
reconciling  recorded  receivables  with the  departments  as                                                                   
part of preparing audited financial statements.                                                                                 
                                                                                                                                
Representative  Kelly  asked  if  the  process  would  change                                                                   
behavior.                                                                                                                       
                                                                                                                                
Co-Chair Hawker  agreed that the  procedure is  not practical                                                                   
unless it results in improved control of agency spending.                                                                       
                                                                                                                                
Ms.  Rehfeld added  that OMB's  effort has  been to  identify                                                                   
areas  with uncollectable  revenue and  determine whether  to                                                                   
replace  a funding source  with general  funds. She  referred                                                                   
to  requests  for  funding  source  changes  to  address  and                                                                   
correct the  problem. She underlined  that grants  are closed                                                                   
after August  31 and  departments will  be unable to  collect                                                                   
after that  time; the  problem needs to  be addressed  on the                                                                   
front end of the process.                                                                                                       
                                                                                                                                
Representative Kelly  agreed that the issue should  be looked                                                                   
into.                                                                                                                           
                                                                                                                                
Co-Chair Hawker concurred.                                                                                                      
                                                                                                                                
2:35:04 PM                                                                                                                    
                                                                                                                                
Co-Chair Hawker  segued to ratifications related  to Medicaid                                                                   
School Based  Administrative  Claims and  referred to  a DHSS                                                                   
handout, "DHSS  Schedule of  School Based Services  Financial                                                                   
Information, SFYs  2003, 2004, 2005, 2006, 2007,  2008" (copy                                                                   
on file).                                                                                                                       
                                                                                                                                
Co-Chair Hawker  emphasized the significance of  the problem.                                                                   
He thought  the evidence pointed  to a problem  in accounting                                                                   
management and control at DHSS related to the program.                                                                          
                                                                                                                                
Representative  Austerman queried  the  DHSS process  related                                                                   
to the  Medicaid ratification.  He asked  how the  department                                                                   
had been able  to absorb the approximately $7  million it had                                                                   
spent   without  being   reimbursed.  He   wondered  if   the                                                                   
legislature had funded the difference.                                                                                          
                                                                                                                                
ALISON   ELGEE,    ASSISTANT   COMMISSIONER,    FINANCE   AND                                                                   
MANAGEMENT   SERVICES,  DEPARTMENT   OF  HEALTH  AND   SOCIAL                                                                   
SERVICES,  noted  that there  were  a  variety of  issues  at                                                                   
stake  and that she  wanted to  start with  the simpler  ones                                                                   
before addressing  the school  based administration  claiming                                                                   
program.                                                                                                                        
                                                                                                                                
Ms.  Elgee explained  to Representative  Austerman that  DHSS                                                                   
had  spent money  against  a legislative  appropriation  that                                                                   
was comprised  of multiple  fund sources,  where the  revenue                                                                   
side   of  the   appropriation  did   not  materialize.   She                                                                   
emphasized  that  nothing  was absorbed.  The  department  is                                                                   
currently   trying  to   clean  up  the   books  by   getting                                                                   
authorization   from  the   legislature   to  recognize   the                                                                   
expenditures as general fund.                                                                                                   
                                                                                                                                
Co-Chair  Hawker described  what  would happen  to a  citizen                                                                   
who wrote  a check against a  bank account that did  not have                                                                   
sufficient  funds.  He  asked   how  an  agency  could  spend                                                                   
millions of  dollars and then  come back so many  years later                                                                   
to ask  for the revenue to  cover the expenditures.  He asked                                                                   
where the cash came from.                                                                                                       
                                                                                                                                
Ms.  Elgee spoke  specifically  to line  131 [Medicaid  State                                                                   
Programs],  which  illustrates  what  the  department  is  up                                                                   
against  in trying to  balance expenditures  and revenues  on                                                                   
an annual  basis. She  explained that  the department  spends                                                                   
many  hundreds  of  millions   of  dollars  in  the  Medicaid                                                                   
program and  draws federal funds  on a weekly basis  based on                                                                   
the expenditures to  keep the money in the  state treasury as                                                                   
opposed to the  federal treasury. The claims  for the federal                                                                   
revenue  are  filed  quarterly;   the  claim  for  the  final                                                                   
quarter of state  fiscal year is filed after  September 30 of                                                                   
the subsequent  fiscal year  (the state  fiscal year  ends on                                                                   
June  30). The  claim is  filed  for all  expenses made  from                                                                   
April 1 through June 30.                                                                                                        
                                                                                                                                
Ms. Elgee detailed  that Medicaid has a multitude  of various                                                                   
match  rates; it  is  not  a straight-forward  program.  Each                                                                   
component   of  the  program   has  to   be  accounted   for,                                                                   
expenditures  and match  rates.  The report  is  large. As  a                                                                   
result,  the  department  is  closing  out  its  state  books                                                                   
before it  has made the final  claim for many of  the federal                                                                   
programs.  The  problem  caused  by the  timing  of  the  two                                                                   
actions is significant.                                                                                                         
                                                                                                                                
Ms. Elgee  noted that related  to the line 131  ratification,                                                                   
she  suspected  that the  money  was  expended and  that  the                                                                   
department  expected  to  be   reimbursed  from  the  federal                                                                   
government.  She   expected  that  the  department   had  not                                                                   
recognized that  the match rate  of federal funds  to general                                                                   
funds was  not aligning  with expenditures  made until  after                                                                   
the state books had been closed.                                                                                                
                                                                                                                                
Ms.   Elgee  explained   that  the   situation  was   further                                                                   
complicated  by the fact  that the department  has up  to two                                                                   
years to  amend federal claims.  The numbers move  throughout                                                                   
the   subsequent   quarters    as   DHSS   books   additional                                                                   
expenditures  against  encumbrances  and as  other  close-out                                                                   
activity goes  along. There  is no  clear stopping  point for                                                                   
determining what can reasonably be expected.                                                                                    
                                                                                                                                
2:42:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Hawker  restated the  situation: the department  has                                                                   
a huge  operating cash flow,  there is no once-a-year  moment                                                                   
during which  everything stops and  begins fresh, and  it has                                                                   
been  able  to  stay ahead  of  cash  requirements  with  the                                                                   
billing  process  and procedures.  In  other words,  a  check                                                                   
never bounced.                                                                                                                  
                                                                                                                                
Representative  Doogan   thought  the  system   was  "sloppy"                                                                   
because  there   was  no  stopping  point  to   consider  the                                                                   
balance.  Ms. Elgee  replied  that  there was  always  enough                                                                   
authorization and appropriations to cover expenses.                                                                             
                                                                                                                                
2:44:14 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hawker clarified  that  Ms. Elgee  was  considering                                                                   
the  appropriations side,  while  the questions  was  whether                                                                   
the  issue  would have  shown  up  if  there was  a  stopping                                                                   
point.                                                                                                                          
                                                                                                                                
Representative  Gara understood the  part about money  coming                                                                   
in  and being  wrong. He  wanted to  know whether  department                                                                   
error  such  as missing  application  deadlines  resulted  in                                                                   
missing money.  Ms. Elgee replied  that his question  led the                                                                   
discussion   into   Medicaid  school   based   administration                                                                   
claiming territory.                                                                                                             
                                                                                                                                
2:46:53 PM                                                                                                                    
                                                                                                                                
Co-Chair Hawker  pointed out  that the ratification  requests                                                                   
go back  to FY  04. He  asked for  explanation regarding  the                                                                   
receivables related  to the  school based Medicaid  services,                                                                   
beginning with a description of the program.                                                                                    
                                                                                                                                
Ms. Elgee  informed the  committee that  the Medicaid  school                                                                   
based  administrative   claiming   component  is  a   program                                                                   
designed  to  allow  states  to  recover  a  portion  of  the                                                                   
administrative  overhead  costs  that  school  districts  may                                                                   
attribute  to helping serve  Medicaid-eligible students.  The                                                                   
program  is different  from the  program  that allows  school                                                                   
districts  to claim  Medicaid for  direct-service costs.  For                                                                   
example,  a district  bringing in  a speech  therapist for  a                                                                   
Medicaid-eligible  child is  a direct  service that  Medicaid                                                                   
can  be billed  for.  On the  other  hand,  the school  based                                                                   
administrative  claiming  program   is  designed  to  try  to                                                                   
recover  district  administrative   support  costs  that  are                                                                   
attributable to having provided the direct service.                                                                             
                                                                                                                                
Ms.  Elgee reported  that  the  DHSS handout  shows  spending                                                                   
going back  to 2003,  when ratification  was not needed,  and                                                                   
shows  the program  history from  FY  04 through  FY 08.  She                                                                   
emphasized   that    the   ratification   requests    present                                                                   
uncollectable revenues  through the first half of  FY 07. She                                                                   
highlighted that  DHSS continues  to have financial  exposure                                                                   
on the  program for  the second  half of 2007  and all  of FY                                                                   
08.                                                                                                                             
                                                                                                                                
Co-Chair  Hawker pointed  out the corresponding  note  at the                                                                   
bottom of page.                                                                                                                 
                                                                                                                                
Ms. Elgee  described what  had happened  in the program.  The                                                                   
federal government  requires that the state  department train                                                                   
school district  personnel in  terms of allowable  activities                                                                   
to  be claimed  under  the program,  identifies  a cost  pool                                                                   
attributable  to those allowable  activities, and  identifies                                                                   
the personnel  that are in  support of the activities.  Every                                                                   
quarter, a  study is  made during  a randomly selected  week,                                                                   
on randomly  selected authorized personnel  and participants.                                                                   
The  random-moment study  tracks  individuals throughout  the                                                                   
week and the  results are extrapolated throughout  the entire                                                                   
universe identified  for the program.  The Medicaid  claim is                                                                   
based on  the results of the  study. The reimbursement  has a                                                                   
50 percent match rate by the federal government.                                                                                
                                                                                                                                
Ms.  Elgee  explained  that  during   the  early  years,  the                                                                   
process  was  followed,   the  claims  were  made,   and  the                                                                   
receivables  booked.  However,  the federal  government  only                                                                   
participated in the  cost of the program in a  portion of the                                                                   
claims  that  were  actually  made.  The  federal  government                                                                   
deferred  the remaining  portion of the  claims. In  December                                                                   
of  2008,  the  federal  personnel met  with  the  state  and                                                                   
reported  that there were  problems with  the state  program;                                                                   
the claiming  plan was  good, but it  was not being  properly                                                                   
run,  and   the  claims  were   not  being  developed   in  a                                                                   
supportable way.  The federal personnel came up  with several                                                                   
examples,  including  a  janitor  in one  district  that  was                                                                   
identified as being  part of the cost pool  and was surveyed;                                                                   
the  federal  government  could see  no  correlation  between                                                                   
what the janitor  did and the services being  provided to the                                                                   
Medicaid-eligible children within the school district.                                                                          
                                                                                                                                
Ms. Elgee summarized  that in the early years  considered for                                                                   
ratification, a portion  of each of the claims  was deferred.                                                                   
In the meantime,  the state had  used the money, which  had a                                                                   
history  of being  shared (after  direct  program costs  were                                                                   
accounted  for)  50  percent   to  the  participating  school                                                                   
districts and 50 percent to DHSS.                                                                                               
                                                                                                                                
2:52:47 PM                                                                                                                    
                                                                                                                                
Ms.   Elgee  detailed   that  the   department  portion   was                                                                   
programmed  into  several  department  areas;  currently  the                                                                   
revenues  support   program  operations  in  the   Office  of                                                                   
Children's Services  in the Division of Public  Health and in                                                                   
the department support-services components.                                                                                     
                                                                                                                                
Co-Chair Hawker  underlined Ms. Elgee's language  regarding a                                                                   
history  of taking  the federal  reimbursement and  splitting                                                                   
it  50/50 with  participating  school districts.  He  pointed                                                                   
out that during  2003 through 2005 the district  portion from                                                                   
the  Centers for  Medicare and  Medicaid  Services (CMS)  was                                                                   
disbursed  through a  reimbursable  services agreement  (RSA)                                                                   
to the  Department of Education  (DEED); subsequently  it was                                                                   
paid  directly to  the  school  districts. He  asked  whether                                                                   
there was ever  a written agreement or  legislative authority                                                                   
acknowledging  the transactions. Ms.  Elgee replied  that she                                                                   
had  been  trying  to determine  the  answer  and  was  still                                                                   
researching.                                                                                                                    
                                                                                                                                
Co-Chair  Hawker  assumed that  the  payments  had been  made                                                                   
without contractual or statutory authority.                                                                                     
                                                                                                                                
Representative  Austerman  asked  whether  CMS  had  directly                                                                   
paid the  school districts. Ms.  Elgee replied that  DHSS had                                                                   
made  the payments.  She directed  attention to  a column  in                                                                   
the  middle of  the  spreadsheet ["RSA'd  DEED"  on the  DHSS                                                                   
handout]  listing RSAs  and explained  that in certain  years                                                                   
the money  was sent  to DEED for  subsequent distribution  to                                                                   
school districts;  after 2006, the monies were  paid directly                                                                   
by DHSS to the districts.                                                                                                       
                                                                                                                                
Co-Chair  Hawker emphasized  that while  the money was  paid,                                                                   
CMS  had deferral  or withholding  in the  amounts listed  in                                                                   
the  second-to-the-right-hand   column  [DHSS  handout].  Ms.                                                                   
Elgee agreed; the  column contained the balance  of the claim                                                                   
made for which no cash was forthcoming.                                                                                         
                                                                                                                                
Co-Chair Hawker  pointed out that  the program  not conducted                                                                   
in 2009;  he suspected that was  related to CMS  meeting with                                                                   
DHSS about the problems. Ms. Elgee concurred.                                                                                   
                                                                                                                                
2:56:25 PM                                                                                                                    
                                                                                                                                
Representative  Austerman referred  to the surveys  conducted                                                                   
and  CMS deciding  to  defer the  money  because of  problems                                                                   
found  during the  survey.  He  expressed concerns  that  the                                                                   
surveys had  shown problems  back to  2004 and yet  continued                                                                   
until  much  later.  Ms.  Elgee   responded  that  corrective                                                                   
efforts  had been  made to  address the  problems in  January                                                                   
2007; a  new claiming  plan was approved  by CMS  and adopted                                                                   
to attempt  to address prior  problems. However,  the federal                                                                   
officials  said the  claiming plan  was good,  but the  state                                                                   
did not  follow the  plan; errors  were made  in the  program                                                                   
administration itself.  She reported that the first  red flag                                                                   
was  a  claim processed  on  behalf  of  the state  that  was                                                                   
significantly  larger  than  claims from  other  states  with                                                                   
larger population  bases; she  suspected that was  the reason                                                                   
behind the deferral of a portion of the early claims.                                                                           
                                                                                                                                
Representative Austerman  wondered why people  were not fired                                                                   
for mistakes  made during 2004-2006.  He questioned  what the                                                                   
department was not  doing. Ms. Elgee agreed  that the concern                                                                   
was  a good  one. She  said that  the individual  responsible                                                                   
during  the period  is  no longer  with  the department.  She                                                                   
could  not speak  to  what was  going  on from  a  management                                                                   
perspective.                                                                                                                    
                                                                                                                                
Co-Chair  Hawker concurred  with  Representative  Austerman's                                                                   
perplexity and frustrations.                                                                                                    
                                                                                                                                
Vice-Chair  Thomas  reported  that  he  had  seen  a  private                                                                   
corporation  go  bankrupt  over   similar  issues,  including                                                                   
"creative  accounting"  where  money  was  rolled  ahead  and                                                                   
hidden.                                                                                                                         
                                                                                                                                
Co-Chair  Hawker reported  that  the term  in accounting  was                                                                   
"kiting."                                                                                                                       
                                                                                                                                
Vice-Chair  Thomas wondered  whether  other departments  were                                                                   
doing  the same  thing. Ms.  Rehfeld responded  that she  was                                                                   
not  aware  of  other  programs   with  similar  issues.  She                                                                   
credited  DHSS  with  coming  to  OMB  right  away  when  the                                                                   
problems began  to show up. She  pointed out that  there were                                                                   
many  elements   in  the   ratifications   as  well  as   the                                                                   
supplemental  request  and  the  FY  11  budget  because  the                                                                   
revenues  were  significant components  in  the  department's                                                                   
operations.  She   stated  that   the  issue  needed   to  be                                                                   
addressed.                                                                                                                      
                                                                                                                                
3:01:10 PM                                                                                                                    
                                                                                                                                
Co-Chair   Hawker  asserted   that  her   statement  was   of                                                                   
paramount importance  to the committee, as so  many places in                                                                   
the budget were  affected. He directed attention  to the last                                                                   
two columns on  the right of the DHSS handout:  the requested                                                                   
ratification  or  amount of  authority  needed  to clear  the                                                                   
books, listed  by fiscal year;  and the CMS deferral  column,                                                                   
or the amount  withheld by CMS. He highlighted  that the 2004                                                                   
numbers  were the  same in both  columns. He  asked why  only                                                                   
$221,290.00 needed  to be ratified  for 2005 if  CMS withheld                                                                   
$3.7 million  that year. By 2007,  the state was asked  for a                                                                   
$3  million ratification  when  CMS  deferred only  $2.8.  He                                                                   
queried the differential.                                                                                                       
                                                                                                                                
Ms.  Elgee  replied  that  there were  two  reasons  for  the                                                                   
differential.  First,  in  the context  of  a  zero-balancing                                                                   
exercise, some of  the expenditures can be offset  with other                                                                   
revenue  collected or  lapsed balances  that were  available;                                                                   
that will tend  to reduce the ratification necessary  for the                                                                   
uncollectable receivables.  She pointed out that  there was a                                                                   
larger  problem  than  the particular  program;  the  problem                                                                   
lies  in the  revenue-collection  environment for  DHSS as  a                                                                   
whole.  Personnel has  been working  diligently  to clean  up                                                                   
the problem,  but she believed that  in FY 07 (the  year that                                                                   
reflects  a   ratification  request   larger  than   what  is                                                                   
reflected  as  a deferral),  some  revenues  were  improperly                                                                   
attributed.  She  emphasized   that  cleaning  up  the  state                                                                   
accounting  records  in  terms  of unraveling  who  did  what                                                                   
related  to  posting  revenues   and  where  they  truthfully                                                                   
belonged would  takes a  great deal  of time. The  department                                                                   
has not  invested  the time since  the bottom  line will  not                                                                   
change in terms of what is needed for ratification.                                                                             
                                                                                                                                
Co-Chair Hawker  maintained that  "where revenues  truthfully                                                                   
belonged" and  "misposting" begins to imply  something "very,                                                                   
very  sinister."  He asked  whether  some programs  that  the                                                                   
legislature  had authorized  through  the  budget process  to                                                                   
receive  full federal  funding  were in  fact not  [receiving                                                                   
that  funding]. Ms.  Elgee responded  that  she thought  that                                                                   
was the case.                                                                                                                   
                                                                                                                                
Co-Chair  Hawker observed  that  previous legislative  action                                                                   
was  based   on  the  understanding  that   certain  programs                                                                   
received their full  federal funding authority,  when in fact                                                                   
the federal funding authority may not have existed.                                                                             
                                                                                                                                
Ms. Elgee replied  that the federal authority  existed in the                                                                   
context  of  the  appropriation,   but  whether  the  revenue                                                                   
recorded against  that authority was attributable  to actions                                                                   
on  the   part  of   that  particular   program,  or   earned                                                                   
specifically  by that program,  is a  question that  is being                                                                   
researched.  She believed  there was  some kind  of "mix  and                                                                   
match going on to balance out the books."                                                                                       
                                                                                                                                
Co-Chair   Hawker  emphasized   his   appreciation  for   the                                                                   
department's  truthfulness  and  his understanding  that  the                                                                   
testifiers present were only the messengers.                                                                                    
                                                                                                                                
Ms.  Rehfeld pointed  out that  the  Division of  Legislative                                                                   
Audit  looks  carefully at  agencies  annually,  particularly                                                                   
departments like  DEED and DHSS with a significant  number of                                                                   
federal  programs.  The  division  has  identified  the  DHSS                                                                   
revenue issue  through audit  work. She  thought it  was good                                                                   
that the challenges are being recognized and addressed.                                                                         
                                                                                                                                
3:06:52 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hawker  noted  that  the  Division  of  Legislative                                                                   
Audit  has been  looking at  revenue collectability  overall.                                                                   
He reiterated frustration  and stated that the  situation was                                                                   
unacceptable. He  was concerned  that the problem  pointed to                                                                   
a  wider-sweeping   one.  Legislative   auditors  have   been                                                                   
working  on the  comprehensive annual  financial report,  but                                                                   
their findings  have not  been specific  or have indicated  a                                                                   
problem of the magnitude identified in current testimony.                                                                       
                                                                                                                                
Co-Chair  Hawker hoped,  with  the committee's  blessing,  to                                                                   
request   that  Legislative   Budget   and  Audit   Committee                                                                   
specifically perform  an expedited audit of the  DHSS program                                                                   
in order  to get  an independent  review and  report back  to                                                                   
the committee  on the scope of  the problem and  the adequacy                                                                   
of measures already implemented by OMB and DHSS.                                                                                
                                                                                                                                
Co-Chair  Hawker noted  that the  members  present nodded  in                                                                   
the affirmative  and that  there was  no negative  indication                                                                   
from the committee.                                                                                                             
                                                                                                                                
Representative  Kelly stated his  support and commented  that                                                                   
the  situation resembled  a  bank  balance with  the  federal                                                                   
reserve bank;  once the  balance slips  behind, it  is almost                                                                   
impossible to recover.  He suggested looking back  further to                                                                   
perhaps 1998;  he wondered if  the situation then  was better                                                                   
or worse.                                                                                                                       
                                                                                                                                
Ms.  Elgee described  the department's  increasingly  complex                                                                   
environment  from  the  standpoint  of  funding  and  federal                                                                   
claiming  requirements.   At  the   same  time,   because  of                                                                   
increased automation,  the department also has  a much higher                                                                   
level of  oversight and scrutiny.  She referred to  an older,                                                                   
ledger-sheet   method   of  tracking   federal   funds.   The                                                                   
department recognized  that the  process had to  be automated                                                                   
and purchased  the same software  used by many  other states.                                                                   
Unfortunately, the  software was implemented at  DHSS without                                                                   
a thorough understanding of how it worked.                                                                                      
                                                                                                                                
Ms.  Elgee related  that the  department  had contracted  the                                                                   
previous year  with a consultant  who has worked  with states                                                                   
on  indirect   cost-allocation   plans  and  understood   the                                                                   
software.  He evaluated  the  DHSS claiming  environment  and                                                                   
gave  an  18-month  timeline to  make  improvements  that  he                                                                   
thought  would   put  the  department  back  on   track.  The                                                                   
consultant  had described  the  timeline,  completed by  June                                                                   
30, 2010,  as very  aggressive. The  department has  recently                                                                   
decided to revise the deadline.                                                                                                 
                                                                                                                                
Ms.  Elgee reported  that significant  improvements had  been                                                                   
made, including  filing federal claiming reports  on time for                                                                   
the first  time in years,  making regular draws,  and posting                                                                   
revenues  to  program operations.  She  described  historical                                                                   
experience  with   an  "impossible  environment"   to  manage                                                                   
against.                                                                                                                        
                                                                                                                                
3:15:03 PM                                                                                                                    
                                                                                                                                
Representative  Kelly  advised  entering  the  audit  with  a                                                                   
neutral  mind-set.  He  acknowledged the  difficulty  of  the                                                                   
task, based  on his  own experience.  He asked whether  over-                                                                   
claiming was  a practice. Ms.  Elgee did not believe  that to                                                                   
be  the case.  She thought  every  effort was  made to  claim                                                                   
appropriately,   although   the  federal   government   could                                                                   
disallow certain claims.                                                                                                        
                                                                                                                                
Representative  Kelly  thought  a  certain  amount  would  be                                                                   
disallowed even if  the rules were followed. He  asked if the                                                                   
rules  were clear.  Ms. Elgee  answered that  the rules  were                                                                   
changing frequently.  The written  rules may not  change, but                                                                   
the  oversight   and  perspective  brought  by   the  federal                                                                   
auditors may change.                                                                                                            
                                                                                                                                
Representative  Kelly   thought  the  changing   rules  could                                                                   
explain the need for mysterious supplemental requests.                                                                          
                                                                                                                                
Co-Chair Hawker  agreed. He noted  the independent  nature of                                                                   
the Legislative Budget  and Audit Committee, of  which he was                                                                   
Vice-Chair.                                                                                                                     
                                                                                                                                
3:18:11 PM                                                                                                                    
                                                                                                                                
Representative Austerman  queried the DHSS handout  2009 line                                                                   
indicating "no  program conducted." Ms. Elgee  responded that                                                                   
DHSS is in the  process of bringing the program  back up in a                                                                   
fashion  that meets  federal requirements  and addresses  the                                                                   
criticism raised  in the federal audit review.  She described                                                                   
the process as  slow. The first claim had been  conducted for                                                                   
the  winter quarter  with limited  participation.  Additional                                                                   
school  districts  have indicated  that  they would  like  to                                                                   
participate in  the program; DHSS  continues to  train school                                                                   
district personnel  and anticipates  larger participation  in                                                                   
the winter and spring quarters.                                                                                                 
                                                                                                                                
Representative  Austerman asked  for clarification  regarding                                                                   
the  process   of  claiming  and  reimbursement.   Ms.  Elgee                                                                   
explained  that   the  amount   claimed  relates   to  school                                                                   
district  expenses  attributable  to  the  CMS  program;  the                                                                   
school district  spends the money. However, when  the federal                                                                   
government  reimburses  the state  based  on the  claim,  the                                                                   
state has been  sharing back a portion of the  revenue to the                                                                   
school  districts, and  retaining  another  portion. Much  of                                                                   
the  retained revenue  was programmed  into the  department's                                                                   
on-going annual operations.                                                                                                     
                                                                                                                                
Representative   Austerman   reviewed   the   2003   numbers,                                                                   
clarifying  that   the  districts   spent  $12  million   and                                                                   
received only  $3.1 million, though  the program was  a 50/50                                                                   
match. Ms. Elgee agreed.                                                                                                        
                                                                                                                                
Representative   Fairclough   asked   whether   the   federal                                                                   
government  had  issued  similar   audit  recommendations  to                                                                   
other states. She  wondered whether there was  a resource the                                                                   
state   could    access   to   determine   if    there   were                                                                   
inconsistencies  shared  by  other   states  or  whether  the                                                                   
state's program  was in error.  Ms. Elgee believed  both were                                                                   
true.   She   thought  federal   oversight   has   tightened;                                                                   
anecdotally  through the  Oregon  consultant, the  department                                                                   
has heard that  the Oregon claiming process  has been greatly                                                                   
reduced because  of federal  scrutiny and disallowed  claims.                                                                   
In  addition, the  federal  review is  very  specific to  how                                                                   
Alaska has operated its program.                                                                                                
                                                                                                                                
3:23:05 PM                                                                                                                    
                                                                                                                                
Representative Fairclough  stated concerns  about disallowing                                                                   
federal  reimbursement, which  could cause  fiscal issues  if                                                                   
not identified quickly.                                                                                                         
                                                                                                                                
Co-Chair   Hawker  asked   about  the   Payment  Error   Rate                                                                   
Measurement  (PERM) program.  Ms.  Elgee  responded that  the                                                                   
PERM program  was a  success. The  program looks at  Medicaid                                                                   
processing   and  whether   the   state   is  paying   claims                                                                   
appropriately.  The department was  part of a  federal review                                                                   
along with 16  other states last year; Alaska  had the lowest                                                                   
error  rate of  states reviewed,  while  other states'  error                                                                   
rate was over 8 percent.                                                                                                        
                                                                                                                                
Co-Chair Hawker  pointed out  that the change  was from  a 47                                                                   
percent error rate in the preliminary testing.                                                                                  
                                                                                                                                
Representative   Doogan  questioned   the  "No  program   was                                                                   
conducted"  year on  the handout.  He wondered  who paid  for                                                                   
the programs.  Ms. Elgee  pointed out  that Alaska  funds its                                                                   
public   education   system   through   the   public   school                                                                   
foundation  formula; the  expenses are  covered through  that                                                                   
process. The particular  program allows the state  to receive                                                                   
some reimbursement  from the federal government  for expenses                                                                   
already financed.                                                                                                               
                                                                                                                                
Representative Doogan  conjectured that the  school districts                                                                   
would  have  expected  that  some  portion  would  have  been                                                                   
repaid  through  the  state by  the  federal  government.  He                                                                   
asked who pays  the costs. Ms. Elgee responded  that DHSS had                                                                   
informed the  districts that it  would not be  conducting the                                                                   
program, so  the districts  had expectation of  reimbursement                                                                   
that did not materialize.                                                                                                       
                                                                                                                                
3:27:21 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hawker wondered  how the loss  of funding  affected                                                                   
schools  and  wondered  why  the  committee  not  heard  from                                                                   
school district personnel.                                                                                                      
                                                                                                                                
Representative   Gara    asked   about   possible    upcoming                                                                   
shortfalls  to both  the districts  and  the department.  Ms.                                                                   
Elgee  responded that  DHSS  has approximately  $2.2  million                                                                   
built  into its  on-going  operations. Recognizing  that  the                                                                   
program  would  not  be  run, the  funding  was  covered  the                                                                   
previous legislative  session through  a FY 09  supplemental.                                                                   
The department  has requested similar  funding for FY  10 and                                                                   
an increment  for  the program  areas in FY  11 to  recognize                                                                   
the  on-going operations  as general  fund  instead of  being                                                                   
supported  by  revenues  recovered  by the  program.  If  the                                                                   
program continues  to operate  as it has  in the past  with a                                                                   
sharing  approach  of  whatever  is  claimed,  the  other  50                                                                   
percent  of the  revenue  collected on  behalf  of the  state                                                                   
would be  available for appropriation  for the  public school                                                                   
foundation  fund,  as  one example.  The  federal  government                                                                   
made clear in  the review that it wants a  direct correlation                                                                   
between the revenues earned and school district financing.                                                                      
                                                                                                                                
Co-Chair  Hawker  noted that  the  state  may not  have  been                                                                   
doing that in the past.                                                                                                         
                                                                                                                                

Document Name Date/Time Subjects
HB 326 Version R.pdf HFIN 2/9/2010 1:30:00 PM
HB 326
HB326 DHSS School Based Services.pdf HFIN 2/9/2010 1:30:00 PM
HB 326