Legislature(2015 - 2016)HOUSE FINANCE 519

02/12/2015 01:30 PM House FINANCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

Audio Topic
01:33:04 PM Start
01:33:17 PM HB72 || HB73
03:27:19 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
FY16 Operating Budget Discussion by Pat Pitney,
Director, Office of Management & Budget, Office
of the Governor & David Teal, Director,
Legislative Finance Division
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 72                                                                                                             
     "An  Act making  appropriations  for  the operating  and                                                                   
     loan  program  expenses  of  state  government  and  for                                                                   
     certain    programs,    capitalizing    funds,    making                                                                   
     reappropriations,  and making appropriations  under art.                                                                   
     IX,  sec. 17(c), Constitution  of  the State of  Alaska,                                                                   
     from  the   constitutional  budget  reserve   fund;  and                                                                   
     providing for an effective date."                                                                                          
HOUSE BILL NO. 73                                                                                                             
     "An  Act making  appropriations  for  the operating  and                                                                   
     capital    expenses    of   the    state's    integrated                                                                   
     comprehensive mental  health program; and  providing for                                                                   
     an effective date."                                                                                                        
1:33:17 PM                                                                                                                    
Co-Chair Neuman  called the meeting  to order,  and explained                                                                   
that  members  of  the  public  should  consider  the  FY  16                                                                   
Governor's  endorsed budget  as a starting  point for  budget                                                                   
discussion. He  added that the  committee was  expecting some                                                                   
amendments to come from the administration.                                                                                     
PAT  PITNEY,  DIRECTOR,  OFFICE   OF  MANAGEMENT  AND  BUDGET                                                                   
(OMB),  OFFICE  OF  THE  GOVERNOR,  clarified  that  she  was                                                                   
speaking from a  summary document entitled "FY  2016 Governor                                                                   
Endorsed Budget  Summary by Department"  (copy on  file). She                                                                   
added  there was  an  additional packet  of  detail that  she                                                                   
would not be  addressing. She mentioned that  she had brought                                                                   
individuals  from   the  department  to  assist   in  answers                                                                   
questions of a detailed nature.                                                                                                 
1:36:30 PM                                                                                                                    
Co-Chair Neuman  recognized the department  commissioners and                                                                   
staff and thanked them for their availability.                                                                                  
Ms.  Pitney gave  some background  on the  budget process  to                                                                   
date. She  stated that  the new governor  had used  the work-                                                                   
in-progress (WIP)  budget of  the previous administration  to                                                                   
meet a  statutory deadline. Several  amendments had  been put                                                                   
forth,  which resulted  in  the  endorsed budget  before  the                                                                   
committee.  She  pointed out  that  the endorsed  budget  was                                                                   
very close  to the  overview budget she  had provided  two or                                                                   
three weeks previously, with only minor changes.                                                                                
Ms. Pitney highlighted  reductions illustrated  in the budget                                                                   
summary:   6.1  percent   for   non-formula  related   agency                                                                   
operations  ($134   million  for  all  agencies   except  the                                                                   
legislative component);  and 4.8  percent ($106 million)  for                                                                   
formula-related  agency   budgets.  In  total   between  non-                                                                   
formula and formula  agency budgets there was  a reduction of                                                                   
nearly  $240  million  from the  previous  fiscal  year.  She                                                                   
clarified that the  entirety of the savings  in the operating                                                                   
budget came from agency operations.                                                                                             
Ms.  Pitney  drew  attention  to  the  "Statewide  Functions"                                                                   
section of  the summary, explaining  that they  included debt                                                                   
service,  direct payments  to  the retirement  fund, and  oil                                                                   
and gas  tax credits; with an  increase of $129  million from                                                                   
the  previous year.  She  summarized  that the  increase,  in                                                                   
combination with  the decrease in agency  operations, totaled                                                                   
an operating reduction of two percent.                                                                                          
1:40:07 PM                                                                                                                    
Ms. Pitney  explained that  when OMB  went from the  work-in-                                                                   
progress budget  to the endorsed budget, it  asked department                                                                   
commissioners to  consider 5 percent and 8  percent reduction                                                                   
scenarios.   Additionally,   departmental    priorities   and                                                                   
priorities  of the  administration were  considered; as  well                                                                   
as reductions and  additions from prior years.  Other impacts                                                                   
to services  and impacts such  as the fuel trigger  mechanism                                                                   
were considered. She  explained that OMB did not  do a strict                                                                   
across  the board  cut,  but rather  reflected  on trends  to                                                                   
make different  levels of reductions  based on  priorities of                                                                   
state functions.  She pointed  out the  reductions listed  by                                                                   
department  on the budget  summary, and  highlighted some  of                                                                   
the decreases  in different  areas that  were anticipated  to                                                                   
generate dialogue and questions.                                                                                                
Ms.  Pitney  discussed  two areas  of  reduction  within  the                                                                   
Department  of  Administration  (DOA), including  the  Alaska                                                                   
Land  Mobile  Radio   (ALMR)  program.  She  felt   that  the                                                                   
reductions   could  be   accomplished   in  the   contractual                                                                   
services   area    by   contract   savings    and   equipment                                                                   
manufacturing changes.                                                                                                          
Co-Chair  Neuman asked  Ms.  Pitney if  OMB  was totally  de-                                                                   
funding ALMR,  and asserted that  there had been  issues with                                                                   
the program  in the legislature  for years. He  discussed the                                                                   
history of ALMR,  recounting that the military  had initially                                                                   
developed  the  communications  program,  and the  state  was                                                                   
going  to take over  parts of  it before  the military  ended                                                                   
its affiliation with  it. The state then picked  up functions                                                                   
previously  done by the  military. It  was his  understanding                                                                   
that fire  departments and other  emergency services  did not                                                                   
use the system.                                                                                                                 
1:43:13 PM                                                                                                                    
Ms.  Pitney responded  that ALMR  was alive  and well;  there                                                                   
would  be  cost reductions  to  the  program,  but it  was  a                                                                   
system that many emergency services relied on.                                                                                  
Co-Chair  Neuman  wondered  if   there  would  be  additional                                                                   
funding needed in  the future. Ms. Pitney responded  that she                                                                   
could  not   guarantee  future   costs  due  to   changes  in                                                                   
technology  and  the next  iteration  of  ALMR. She  did  not                                                                   
anticipate additional costs in FY 17.                                                                                           
Representative  Gara  pointed out  two  parts of  the  budget                                                                   
summary  that did  not make sense  to him,  and thought  that                                                                   
there was  a bigger  cut that was  not reflected.  Within the                                                                   
"Statewide"   section,    he   pointed   out    the   'Direct                                                                   
Appropriation  to Retirement  Account'  item for  $257,278.30                                                                   
and  suggested  it  was  a "fake  increase"  due  to  the  $3                                                                   
billion   from    the   previous   year   spent    from   the                                                                   
Constitutional  Budget Reserve  (CBR). Ms. Pitney  attributed                                                                   
credit to  the legislative  body for  putting the $3  billion                                                                   
in funding  into the  retirement accounts,  which were  long-                                                                   
term  liabilities.  The alternative  plan  had  been for  the                                                                   
contribution  of $1 billion  in the  current and prior  year.                                                                   
She  concluded  that  the  action  taken  the  previous  year                                                                   
[funding the $3  billion] put the state in  a better position                                                                   
for meeting its retirement liability in the long run.                                                                           
Representative  Gara reiterated  his point  that despite  how                                                                   
the funding was  shown on the budget summary,  the retirement                                                                   
account spending had  not gone from zero to  $256 million. He                                                                   
noted that many  legislators had supported the  $3 billion in                                                                   
additional funding from the CBR.                                                                                                
1:46:37 PM                                                                                                                    
Representative   Gara   highlighted   education   under   the                                                                   
"Formula"  section,  and  referred  to  the  previous  year's                                                                   
three-year  education  plan. He  asserted  that  he would  do                                                                   
whatever he could  to avoid school cuts and  that there would                                                                   
be   a  continuing   conversation.  He   recounted  how   the                                                                   
legislature   had  added   funding   in   the  Base   Student                                                                   
Allocation for  three years,  as well as  a plan for  a step-                                                                   
down  of  money   that  would  be  distributed   through  the                                                                   
foundation  formula  but  was   not  foundation  formula.  He                                                                   
thought  that the  additional funding  was approximately  $40                                                                   
million; and  was planned  to reduce by  $12 million  in year                                                                   
two  and $12  million  in year  three  to total  roughly  $90                                                                   
million.  He  pointed  out that  the  first  installment  had                                                                   
already been spent  in the current school year,  and wondered                                                                   
if the $91 million  indicated on the budget  summary were the                                                                   
same  funds that  were sent  through  the foundation  formula                                                                   
(yet was not  foundation formula money). He  questioned as to                                                                   
how the  $91 could be  cut when half  of it had  already been                                                                   
Ms.  Pitney referred  to  the  supplemental budget  that  had                                                                   
been  presented  earlier in  the  week,  and noted  that  the                                                                   
component  was reduced  by $32  million in  the current  year                                                                   
and  $19 million  for the  following year.  She continued  to                                                                   
explain the  difference between  the increase  in the  BSA in                                                                   
the formula and forward-funding at 90 percent for FY 17.                                                                        
Representative Gara  asked if it  was correct that  there was                                                                   
roughly  $50  million being  taken  from  year two  and  year                                                                   
three,  and  the  additional  $40  million  was  coming  from                                                                   
forward  funding at  90 percent  instead of  100 percent,  to                                                                   
add up  to $90  million. Ms.  Pitney clarified  that the  $52                                                                   
million  was  only  showing  up on  the  FY  15  supplemental                                                                   
Representative  Gara  asked  if   the  $90  million  was  the                                                                   
forward-funding  at 90  percent instead  of 100 percent.  Ms.                                                                   
Pitney answered in the affirmative.                                                                                             
1:50:11 PM                                                                                                                    
Co-Chair Neuman  discussed the  issue of the  forward-funding                                                                   
of education, making  note of the $1,269,430.60  indicated on                                                                   
the budget  summary for  education in the  FY 16  WIP budget.                                                                   
He relayed  that the Governor  decided to fund the  amount at                                                                   
90  percent, with  10  percent  ($126 million)  unfunded.  He                                                                   
asked  Ms.  Pitney if  any  of  her materials  reflected  the                                                                   
reduction  in the  current  year's expenditures.  Ms.  Pitney                                                                   
noted that  there was two  components: the amount  of funding                                                                   
that education  had for use  in FY 16  (formula funded  in FY                                                                   
15),  less  the   one  time  funding  of  $32   million.  She                                                                   
clarified that  the education funding  for FY 16  proposed in                                                                   
the combination  of the supplemental  and current  budget was                                                                   
the full  BSA, but  not funding  for the additional  one-time                                                                   
amount. She  explained that the  budget before  the committee                                                                   
reflected  the  amount  of  money being  banked  for  FY  17,                                                                   
rather  than intention  (of  the  administration)  for FY  17                                                                   
education  funding. She  continued  that the  forward-funding                                                                   
of  education  was  merely  moving funds  from  one  bank  to                                                                   
another. She noted  that this administration did  not plan to                                                                   
forward-fund education  as much, pending discussion  over the                                                                   
student  formula  anticipated  to take  place  the  following                                                                   
summer to  inform how much  the administration  would endorse                                                                   
for the FY 17 education budget.                                                                                                 
Co-Chair  Neuman  related  that the  legislature  (in  around                                                                   
2006) had  established the  education fund  in order  to fund                                                                   
education a  year ahead to  ensure that school  districts had                                                                   
an idea  of their budgets even  though their fiscal  year did                                                                   
not adhere  to that  of the legislature.  By only  funding it                                                                   
at 90 percent in  the current year, there would  be a gap the                                                                   
following year when  there was sure to be a  deficit and even                                                                   
less   available   funds.   He   noted   his   intention   of                                                                   
establishing  whether forward  funding was  a best  practice.                                                                   
He considered  it important  to provide  some clarity  in the                                                                   
current budget. He  thought that the will of  the legislature                                                                   
might be  to ensure  that it showed  the education  community                                                                   
that it  did intend  to fund  education. He  referred to  the                                                                   
fiscal  summary, which  showed  draws on  the  constitutional                                                                   
budget reserve (CBR)  and a difference of $127  million which                                                                   
would  be a  forthcoming expense  the  following session.  He                                                                   
was  not  sure  that  forward   funding  was  an  appropriate                                                                   
budgeting  tool, and wondered  if other  members had  similar                                                                   
concerns. He  asked Representative  Gattis to comment  on the                                                                   
1:55:48 PM                                                                                                                    
Representative Gattis  remarked that such  budgeting (forward                                                                   
funding)  had been  a concern  with  subcommittees, and  also                                                                   
thought  it  was  important  to bring  some  clarity  to  the                                                                   
process.  She  thought   it  was  difficult  for   people  to                                                                   
understand, and  related that her constituents  perceived the                                                                   
budget process as "a shell game."                                                                                               
Co-Chair  Neuman  noted  that  the  expense  drew  less  from                                                                   
savings  in  the  current  year  but  would  be  present  the                                                                   
following  year, and even  more would  need to be  withdrawn.                                                                   
He stated  the committee  would work  with the department  to                                                                   
identify the concerns and plan for moving forward.                                                                              
Representative Pruitt  added his support for what  was stated                                                                   
with  regard to  forward-funding for  education. He  referred                                                                   
to the  aforementioned  discussion that  would take place  in                                                                   
the  summer, and  felt that  it  was a  dubious and  doubtful                                                                   
task  to  engage  in  productive   discussion  regarding  the                                                                   
education  formula  during  the   time  frame  mentioned.  He                                                                   
stressed the  critical importance  of clarity for  the public                                                                   
as well  as school districts.  He highlighted  the importance                                                                   
of discussion  of education funding,  but was  not optimistic                                                                   
about "fixing the  formula" over the summer.  He thought that                                                                   
the one-time  funding should  be funded  in its entirety,  or                                                                   
not at all.                                                                                                                     
Co-Chair  Neuman  supposed  that the  legislature  could  not                                                                   
fund the  one-time money  and say that  it cut $1.27  billion                                                                   
out of the current year's budget.                                                                                               
1:58:50 PM                                                                                                                    
Representative  Wilson  asked if  the $240  million  decrease                                                                   
included  the $91  million. Ms.  Pitney said  that OMB  could                                                                   
provide the numbers to clarify.                                                                                                 
Representative  Wilson referred  to the  Department of  Labor                                                                   
and Workforce  Development (DLWD)  budget, which  reflected a                                                                   
reduced authorization,  and asked if  it was a  "real" budget                                                                   
cut. She  noted that many  of the budget  cuts on  the budget                                                                   
summary  were   related  to   reducing  authorizations.   She                                                                   
recounted  her  experience with  reducing  authorizations  in                                                                   
the budget,  which  she considered  to make  it appear  as if                                                                   
there  were budget  cuts when  there were not,  and asked  if                                                                   
that  what  was  shown  on the  budget  summary.  Ms.  Pitney                                                                   
explained  that  DLWD  was  being   reduced  by  almost  $4.3                                                                   
million  on a $33  million unrestricted  general fund  (UGF),                                                                   
which  was an  almost  13 percent  UGF  reduction. She  added                                                                   
that  it  was  fortunate  that  DLWD  operated  heavily  with                                                                   
federal funds, so  the reductions were not relative  to their                                                                   
entire operation.  She  pointed out two  areas being  reduced                                                                   
in the  immediate sense:  the allied  health programs  in the                                                                   
Alaska   Vocational   Technical   Center   (AVTEC);   and   a                                                                   
reorganization  of business partnerships  and a reduction  of                                                                   
staff.  She  noted   that  the  decreases  combined   with  a                                                                   
decrease  in federal  funding for  job centers  would have  a                                                                   
real  service impact  for  DLWD.  She summarized  that  while                                                                   
there  was authorization  reductions,  the  $4.2 million  was                                                                   
also a reduction in real services.                                                                                              
2:02:15 PM                                                                                                                    
Representative  Wilson  expressed  her understanding  of  the                                                                   
cuts,   and  highlighted   the  importance   of  the   public                                                                   
understanding  the   difference  between  authorization   and                                                                   
actual  funds. She  described  authorizations  as money  that                                                                   
departments may have  gotten but did not necessarily  have at                                                                   
the current point.                                                                                                              
Ms. Pitney  replied that for  every state agency,  the budget                                                                   
process  required  authority  to expend,  regardless  of  the                                                                   
fund  source.  She  used  a  hypothetical  scenario  about  a                                                                   
federal project  to illustrate the concept  of authorization.                                                                   
She   continued   that   there    were   some   authorization                                                                   
reductions, but  when UGF was  discussed it represented  cash                                                                   
in the bank  and real service reductions of  revenue that was                                                                   
no longer available.                                                                                                            
Ms.  Pitney  explained  her  intention  to  highlight  larger                                                                   
reduction  components  of each  department,  and wondered  if                                                                   
she should  continue in the  same way. Co-Chair  Neuman asked                                                                   
that she continue discussing the highlights.                                                                                    
Ms. Pitney  discussed reductions  in Department of  Commerce,                                                                   
Community  and   Economic  Development  (DCCED)   within  the                                                                   
Tourism  Marketing  Program,  the  Alaska  Seafood  Marketing                                                                   
Institute  (ASMI),  and  internal  departmental  changes,  to                                                                   
equal a  nearly $5 million  decrease from the  previous year.                                                                   
She  pointed out  a $24  million reduction  in Department  of                                                                   
Corrections (DOC);  a key component of which  was a reduction                                                                   
of the Community Jails Program.                                                                                                 
Ms.  Pitney referred  to Department  of  Education and  Early                                                                   
Development (DEED)  and discussed a reduction to  some of the                                                                   
grant  programs on  the  non-formula side  including  digital                                                                   
learning,  network,  and  broadband programs.  She  listed  a                                                                   
reduction in food and water inspections  in the Department of                                                                   
Environmental   Conservation   (DEC),  resulting   in   fewer                                                                   
inspectors. She pointed out a  reduction in the Department of                                                                   
Fish and  Game (DFG), part  of which  was made up  with fund-                                                                   
source shift to other DFG receipts.                                                                                             
2:06:59 PM                                                                                                                    
Ms.  Pitney pointed  out a  reduction  in the  Office of  the                                                                   
Governor, including  one-time reductions  in the  Division of                                                                   
Elections, and  with primary  reductions in reduced  staffing                                                                   
levels  from  previous years.  She  pointed  out one  of  the                                                                   
changes  from   the  recently   presented  overview   budget;                                                                   
originally there  were non-formula  programs that  were being                                                                   
reduced  that   shifted  to   some  formula  programs   being                                                                   
reduced.  She discussed  reductions in  Department of  Health                                                                   
and Social Services  (DHSS) due to some  office streamlining,                                                                   
and  grant program  reductions. Additionally  in DHSS,  there                                                                   
were   two   components  related   to   Medicaid   expansion;                                                                   
including   a  state   to   federal   cost  shift   for   the                                                                   
Catastrophic  Acute  Medical  Assistance  (CAMA)  program,  a                                                                   
program for individuals  who would be eligible  for Medicaid.                                                                   
She  noted  three  primary  offsets  in  the  budget  due  to                                                                   
Medicaid  expansion:  CAMA,  a   $1.5  million  reduction  in                                                                   
behavioral health  grants, and  cost savings from  additional                                                                   
eligibility  of the  Medicaid expansion  population for  some                                                                   
prisoners transported to medical facilities.                                                                                    
2:09:28 PM                                                                                                                    
Ms.  Pitney addressed  a  "fairly significant"  reduction  to                                                                   
the Department  of Law (DOL),  which reflected the  number of                                                                   
lawyers  and support  staff  and  pooling of  resources.  She                                                                   
pointed  out   that  Department  of  Military   and  Veterans                                                                   
Affairs (DMVA)  had been  split in to  two components  on the                                                                   
budget summary,  and that  it was  largely federally  funded.                                                                   
She  explained that  although  the reduction  of 4.5  percent                                                                   
would have  an impact,  because its  operations were  largely                                                                   
federally funded,  the department  would continue  to operate                                                                   
well. She  specified that  the Alaska Aerospace  Corporation,                                                                   
shown  on a separate  line on  the budget  summary, had  been                                                                   
zeroed  out for  general  fund. She  furthered  that OMB  had                                                                   
asked the  aerospace board  and the  chief executive  officer                                                                   
to look at opportunities for privatizing the operation.                                                                         
Ms. Pitney  pointed  out a reduction  of 2.5  percent to  the                                                                   
Department  of Natural  Resources (DNR).  She explained  that                                                                   
DNR  was a  fairly high  priority due  to the  nature of  the                                                                   
revenue capacity  that they supported for the  state. Similar                                                                   
to  DOL,  there   would  be  pooling  of   resources  through                                                                   
minimizing  stand-alone  offices and  having  expertise in  a                                                                   
more general pool of resources.                                                                                                 
Ms. Pitney  addressed the Department  of Public  Safety (DPS)                                                                   
and  noted the  biggest  reduction  in transitioning  from  a                                                                   
stand-alone highway  patrol division  to having all  troopers                                                                   
serve  the   full  scope  of   a  trooper  requirement.   She                                                                   
clarified  that  transition  would require  all  troopers  to                                                                   
work in  the whole  breadth of  the trooper component  rather                                                                   
than  specializing  in  highways  alone. She  pointed  out  a                                                                   
reduction  in  the  specialized  special  emergency  reaction                                                                   
teams  (SERT), who  would also  be required  to work in  full                                                                   
trooper duty.  She noted  that the  number of troopers  would                                                                   
be impacted across the board.                                                                                                   
Ms.  Pitney  stated  that reductions  to  the  Department  of                                                                   
Revenue  (DOR) were  much more  on  the administrative  side,                                                                   
with the  reduction of  some administrative  duties,  as well                                                                   
as in  the tax  area including  elimination  of the film  tax                                                                   
credit division.                                                                                                                
Ms.  Pitney   discussed  components  in  the   Department  of                                                                   
Transportation and  Public Facilities (DOT) with  a reduction                                                                   
in  the Alaska  Marine  Highway system,  a  reduction in  the                                                                   
various  maintenance   and  operations   areas  for   surface                                                                   
transportation,  and consolidation in  the IT divisions.  She                                                                   
specified that  the overall reduction totaled  $10.8 million.                                                                   
She referred  to a  2.5 percent  reduction in the  University                                                                   
of  Alaska,  driven  by recommendations  from  the  Board  of                                                                   
Regents. She  added that  the reduction  was similar  to what                                                                   
the reduction in K-12 education would be.                                                                                       
Ms.  Pitney  addressed  a reduction  to  the  fuel  utilities                                                                   
mechanism  (commonly  known  as   "the  trigger  mechanism"),                                                                   
noting that  the mechanism  was being  eliminated. She  added                                                                   
that with  the price of oil  going down, the  mechanism would                                                                   
not have been invoked in the first place.                                                                                       
2:15:47 PM                                                                                                                    
Ms. Pitney referred  to the branch-wide  unallocated reserve,                                                                   
and explained  that the  administration  was proposing  a $10                                                                   
million  contingency fund  of sorts. The  funds were  planned                                                                   
to mitigate effects  of the large reductions  that were being                                                                   
made, some of  which may have unintended consequences  or may                                                                   
inadvertently   impact  another   agency.   She  noted   that                                                                   
relative  to  a  $134 million  reduction  among  agency  non-                                                                   
formula  operating budgets,  the $10 million  was to  correct                                                                   
any  errors. She  referred  to a  proposed  decrease of  just                                                                   
under  $500,000  to  Judiciary.   She  left  the  legislative                                                                   
budget for the body to work out.                                                                                                
Co-Chair Neuman asked  if the $10 million reduction  when the                                                                   
fuel trigger  was eliminated was  the same $10  million being                                                                   
moved  to the  governor's office  for  the contingency  fund.                                                                   
Ms. Pitney  replied that the  description of the  $10 million                                                                   
was  correct,  whether  it  was   part  of  the  $24  million                                                                   
reduction  in DOC  versus the  $27 million  reduction in  the                                                                   
fuel trigger  mechanism. She  did not  think the $10  million                                                                   
for the  contingency fund could  be attributed to any  one of                                                                   
the  reductions.  She  added  that the  purpose  of  the  $10                                                                   
million was  to address cuts  that may  not have been  in the                                                                   
best interest  of Alaskans; or  to "shore up the  edge" until                                                                   
future plans could be made.                                                                                                     
Co-Chair Neuman  stated that  he had  done a similar  funding                                                                   
maneuver  in the  past in  DHSS. He  noted that  there was  a                                                                   
legal    opinion    stating    that    the    maneuver    was                                                                   
unconstitutional  since  it was  unallocated  funds from  the                                                                   
legislature.  He  stated  that   the  supplemental  could  be                                                                   
better used  to address  any issues  that arose. He  referred                                                                   
to the  current year's  supplemental budget,  which was  left                                                                   
at zero, and shared  that normally it would be  at around $20                                                                   
million. He  mentioned that in times  past it had been  up to                                                                   
$50  million,  but  was  reduced to  minimize  draws  on  the                                                                   
budget.  He reiterated  that it  appeared as  though the  $10                                                                   
million  would be  housed under  the  governor's office,  and                                                                   
asked Ms. Pitney to discuss reasons why.                                                                                        
2:20:05 PM                                                                                                                    
Ms.  Pitney  replied  that  the   $10  million  was  for  the                                                                   
flexibility  of providing  for unintended  consequences  of a                                                                   
Co-Chair Neuman  indicated there would be  further discussion                                                                   
on the subject.                                                                                                                 
Co-Chair Thompson  noted he was not looking  to criticize but                                                                   
felt  there   were  items  he   did  not  feel   were  actual                                                                   
reductions.  He referred  to Medicaid  expansion and  pointed                                                                   
out that  many reductions listed  on the budget  summary were                                                                   
based  on  the  assumption  that  it  would  go  through.  He                                                                   
referred to  the Kotzebue  community jail and  used it  as an                                                                   
example   to  discuss   expenses  that   were  a  result   of                                                                   
reductions. He  expressed the  need for responsible  cuts but                                                                   
was  concerned about  having  "real  numbers" listed  in  the                                                                   
Vice-Chair  Saddler  asked  about  the  governor's  statement                                                                   
that the fiscal  situation demanded a response  of 16 percent                                                                   
budget cuts,  and stated  that he  did not  see cuts  to that                                                                   
amount  in  departments  or  budget-wide.  He  asked  if  Ms.                                                                   
Pitney could  explain the  discrepancy. Ms. Pitney  responded                                                                   
that she was not  aware of the exact quote, and  that OMB had                                                                   
asked the  commissioners to  forecast service delivery  three                                                                   
or four  years in the  future in the  case of a  reduction of                                                                   
25 percent in  state funding. She qualified that  it would be                                                                   
a multi-year process  to make the reductions,  and they would                                                                   
inevitably  identify  particular  areas that  the  government                                                                   
would not want  to reduce to 75 percent of  the current level                                                                   
of surface.  In other  areas, it  may be  possible to  cut 25                                                                   
percent or  even 30  percent through  drastic changes  in how                                                                   
business  was  done.  She  stated that  the  reality  of  the                                                                   
funding in a  deficit environment of $3.5 billion,  even at a                                                                   
25  percent  reduction,  left   an  inability  to  reach  the                                                                   
deficit   level.  She   postulated   that   there  were   two                                                                   
conversations  going on: what  would the  state look  like if                                                                   
its footprint was  much smaller; and what was  the right size                                                                   
of government  for Alaska,  given the  services expected  and                                                                   
the  uniqueness   of  the  state   and  its  geography.   She                                                                   
furthered that Alaska  had the largest airport  system in the                                                                   
world, and  the largest marine  highway system in  the world.                                                                   
She  added that  there  was  a third  item  to  be aware  of,                                                                   
whether the  state would  be fortunate in  the price  of oil,                                                                   
or would it have to pull out different tools going forward.                                                                     
2:25:04 PM                                                                                                                    
Co-Chair  Neuman  asked  Ms.   Pitney  to  clarify  that  the                                                                   
aforementioned  25  percent  reduction  was  for  non-formula                                                                   
funds.  Ms. Pitney  stated she  would like  to challenge  the                                                                   
reduction for  all areas, but  reiterated that it  was likely                                                                   
there  were  certain  areas  that   couldn't  be  25  percent                                                                   
smaller. She thought  that without asking for  the challenge,                                                                   
things would not be looked at differently.                                                                                      
Co-Chair  Neuman agreed  and  stated that  his  understanding                                                                   
was the  governor's request to  the departments was for  a 25                                                                   
percent  over four years  on non-formula  funds, which  would                                                                   
be equivalent to  a $550 million reduction from  $2.2 billion                                                                   
in formula  funds,  and would  clearly not  deal with a  $3.5                                                                   
billion deficit.  He characterized  the governor's  statement                                                                   
as "everything is on the table."                                                                                                
Vice-Chair  Saddler noted  that  he thought  the  expectation                                                                   
was  raised for  a  16 percent  reduction,  and wondered  how                                                                   
well  the state  would be  served  by not  making the  harder                                                                   
cuts  sooner. He  echoed  Ms. Pitney's  statements  regarding                                                                   
more budget  cuts being necessary  in the future,  and stated                                                                   
that he  looked forward  to working with  Ms. Pitney  and OMB                                                                   
to make the reductions sooner rather than later.                                                                                
Representative  Edgmon referred  to  a previous  conversation                                                                   
with  Co-Chair   Neuman  and  alluded  to   his  subcommittee                                                                   
budgets  for DOC and  DPS; he  noted that  in the  subsequent                                                                   
week  he  would  be  having  a   joint  meeting  between  two                                                                   
subcommittees  to  fully  measure the  cutting  of  community                                                                   
jails in particular  and the corresponding impact  on DPS. He                                                                   
noted  that there  would be  representatives  from the  court                                                                   
system and  DOA to be present  to help further  delineate the                                                                   
overall  supply   chain  of  costs  that   included  prisoner                                                                   
transport and video  conference. He also noted  they would be                                                                   
addressing videoconferencing  as a means of cost  savings. He                                                                   
spoke to  the impact  of budget cuts  and that sometimes  the                                                                   
impacts  of  the cuts  were  very  different than  they  were                                                                   
initially perceived to be.                                                                                                      
Co-Chair  Neuman stated  that  Representative  Edgmon made  a                                                                   
good point and  that subcommittees were working  on a process                                                                   
to break down silos between departments.                                                                                        
2:29:10 PM                                                                                                                    
Representative   Gara  opined  that   when  the   budget  was                                                                   
regarded by  the public, the  cuts would be characterized  in                                                                   
different ways.  He discussed  the funding of  the retirement                                                                   
system, and reiterated  that he thought it was  inaccurate to                                                                   
call  the $257,278.30  direct  appropriation  an increase  in                                                                   
spending  because of the  previous year's  expenditure  of $3                                                                   
billion spent  from the CBR.  He asked the administration  to                                                                   
consider  that school  districts  wanted  early and  adequate                                                                   
funding;  explaining that  of the two,  schools would  rather                                                                   
have  adequate funding  for the  coming  year. He  considered                                                                   
"adequate" funding  to be beyond  what was done  the previous                                                                   
year, and  beyond what was  being proposed in  the governor's                                                                   
budget.  He  would  consider   adequate  funding  to  be  not                                                                   
cutting any  more teachers, and  not cutting any  more staff.                                                                   
If the state was  not going to do early funding,  he hoped it                                                                   
would  do at  least adequate  funding after  facing years  of                                                                   
teacher  and staff  cuts  that could  drive  people from  the                                                                   
Ms. Pitney acknowledged Representative Gara's remarks.                                                                          
Representative  Wilson revisited  the  idea of  a 16  percent                                                                   
cut  as  heard  from  the  governor.   She  shared  that  her                                                                   
constituents had  communicated that they did not  want to pay                                                                   
for additional revenue.  She asked if the  administration was                                                                   
looking  at a maximum  amount  of savings it  was looking  at                                                                   
taking out for  the following year. Ms. Pitney  restated that                                                                   
OMB  had asked  departments  to look  at  what their  current                                                                   
operations  would look like  at a  25 percent reduction.  She                                                                   
highlighted  the importance  of making  the reductions  in an                                                                   
informed manner,  with knowledge  of current issues  and cost                                                                   
ramifications;  and the  impact to the  overall economy.  She                                                                   
stated that the  25 percent target was being  considered over                                                                   
time, with  agency operations  being reduced  6 percent  this                                                                   
year  and the  following two  years. She  commented that  the                                                                   
overall reduction  being reflected  at 2  percent was  due to                                                                   
increased  tax  credits  and  increased  retirement  savings.                                                                   
She  emphasized  that  making  the budget  reductions  was  a                                                                   
balance, and  added that  this was the  first year  (with the                                                                   
exception of  the university)  that agencies were  faced with                                                                   
a  GF  budget  that  was  less   than  the  prior  year.  She                                                                   
characterized  the   timeline  as  a  prudent   balance,  and                                                                   
asserted  that the  legislative body  had the  ability to  go                                                                   
faster.  She stated  that the  cuts affected  people and  did                                                                   
push off to other entities.                                                                                                     
2:35:27 PM                                                                                                                    
Representative  Wilson  stated  she  would like  to  see  the                                                                   
departmental plans  and noted that she would  soon be working                                                                   
in budget subcommittee.  She commented that she  had received                                                                   
little  information from  the departments  about program  and                                                                   
budget specifics.                                                                                                               
Co-Chair  Neuman  remarked  that  he  had  discussed  related                                                                   
matters with  Ms. Pitney and hoped  to address them  later in                                                                   
the meeting.                                                                                                                    
Representative  Wilson clarified  that she  was referring  to                                                                   
the plans  that showed what  the departments would  look like                                                                   
at 20  to 25  percent less.  She wondered  why the  committee                                                                   
could  not  view  the  plans   in  order  to  help  make  the                                                                   
judgement  as to  what  cuts to  make.  Ms. Pitney  explained                                                                   
that  the  target was  given  to  the departments,  with  the                                                                   
expectation  that  the commissioners  begin  considering  the                                                                   
scenario.  They  had  gotten  through  the 5  percent  and  8                                                                   
percent  reduction  scenarios, but  the  plans  looking at  a                                                                   
longer  term  reduction  of 25  percent  were  not  currently                                                                   
available.  She furthered  that  the plans,  when  available,                                                                   
would  inform   how  to  take   the  next  steps   in  budget                                                                   
reductions where appropriate.                                                                                                   
Co-Chair Neuman  stated that he  had a similar  understanding                                                                   
and that it was the goal set to work on through the summer.                                                                     
Vice-Chair  Saddler  made  note  of the  long-term  trend  of                                                                   
increased   education   funding,   and  asserted   that   the                                                                   
legislature was not firing teachers.                                                                                            
2:38:24 PM                                                                                                                    
Representative   Munoz  asked   for   clarification  on   the                                                                   
overview  and if  Ms.  Pitney would  explain  areas in  which                                                                   
there was  a funding  deletion that was  also added  back in.                                                                   
Ms.  Pitney gave  the  example of  the  Alcohol and  Beverage                                                                   
Control  Board (ABC)  and the  marijuana  law as  one of  the                                                                   
important  operations that  needed to  happen despite  budget                                                                   
reductions. She  explained there  was a reduction  throughout                                                                   
DCCED, however  there was also  an increase of  approximately                                                                   
$1.4  million for  the ABC  board. She  furthered that  there                                                                   
were  increments  for  all  of  the  bargaining  unit  salary                                                                   
adjustments,  and the reduction  target had  to be  met after                                                                   
the  increases. For  each entity  to  meet their  reductions,                                                                   
there  were additional  cuts to  make  in order  to meet  the                                                                   
salary obligations.                                                                                                             
Representative  Munoz   pointed  out  $850,000   of  restored                                                                   
funding in  the DEED budget for  the Language Network,  and a                                                                   
line  below it  indicating the  reversal of  the amount;  and                                                                   
stated   that  such   examples  were   seen  throughout   the                                                                   
document.  Ms.   Pitney  explained  that  the   scenario  was                                                                   
reflecting when  a particular  entity was given  a three-year                                                                   
program, in  this case  $2.5 million  to spread across  three                                                                   
2:40:54 PM                                                                                                                    
DAVID  TEAL, DIRECTOR,  LEGISLATIVE  FINANCE DIVISION  (LFD),                                                                   
noted that  he would  be presenting  the budget, and  thought                                                                   
it  might   be  helpful   to  ensure   there  was   a  common                                                                   
understanding  of terms.  He went  on to  explain the  column                                                                   
known  as  "governor's  endorsed   budget,"  which  was  also                                                                   
sometimes called  the "governor's amended budget."  He stated                                                                   
that LFD  did not  use the  latter term,  as it was  reserved                                                                   
for  the  budget  as the  governor  submitted  amendments  on                                                                   
February 18th. He  furthered that the WIP budget  was "dead,"                                                                   
and  was  merely  a budget  submitted  to  meet  a  statutory                                                                   
deadline,  and  had  now  been  replaced  by  the  governor's                                                                   
endorsed  budget. He  did not  see the  need for  comparisons                                                                   
between the  previous year's budget  and the WIP  budget, nor                                                                   
between the  WIP budget and  the governor's endorsed  budget.                                                                   
He considered  that it  would simplify  things immensely  for                                                                   
the  committee   if  they   would  consider  the   governor's                                                                   
endorsed budget only.                                                                                                           
Mr.  Teal  explained  that  he  would  be  working  from  the                                                                   
document "State  of Alaska  Fiscal Summary-FY  15 and  FY 16"                                                                   
(copy  on file). He  noted the  purpose of  a fiscal  summary                                                                   
was to  provide clear and  concise comparison of  spending by                                                                   
category  across fiscal  years. He  thought that  emphasizing                                                                   
the categories  was important  because  LFD looked at  agency                                                                   
operations  differently   than  they  looked   at  statewide,                                                                   
because  of  the  ability to  control  the  agency  operating                                                                   
budgets  much more  readily than  statewide  costs. He  added                                                                   
that cash  flow surplus and deficit  was also reflected  in a                                                                   
fiscal  summary, as  well as  deposits  and withdrawals  from                                                                   
reserve accounts.  He stated  that OMB  had adopted  a format                                                                   
very  similar to  LFD several  years  previously, however  in                                                                   
the current  year the format  had become more  challenging to                                                                   
compare on  a line by line basis.  He argued that it  did not                                                                   
need  to  be compared  on  a  line  by line  basis,  but  the                                                                   
summaries matched  on the bottom of the documents,  for total                                                                   
state  spending  as  well  as  each  of  the  categories.  He                                                                   
qualified  that the summaries  did not  exactly match;  there                                                                   
was a  $20 million difference  due to  the fact that  OMB did                                                                   
not  have a  supplemental  placeholder  on its  document.  He                                                                   
pointed  out line  45  of the  fiscal  summary, which  showed                                                                   
pre-transfer  authorization of  $5,624.9 million  for FY  16;                                                                   
and  OMB's  fiscal summary  indicated  $5,604.9  million  for                                                                   
pre-transfer authorization.                                                                                                     
2:46:10 PM                                                                                                                    
Mr.   Teal    discussed   the   $20   million    supplemental                                                                   
placeholder,  and wondered if  it was a  problem that  it was                                                                   
not reflected  in OMB's  materials. He  pointed out  that the                                                                   
fiscal summary  listed the supplemental  budget for FY  15 on                                                                   
line 15  for about  $45 million; and  clarified that  did not                                                                   
mean it  would be  the same  every year.  He pointed  out the                                                                   
predictability  of some  supplemental  budget  items such  as                                                                   
fire  suppression  (could  run  $20  million  or  more),  and                                                                   
judgements and claims  ($6 million for the current  year). He                                                                   
stated that  LFD was more concerned  about areas such  as the                                                                   
Public Defender's  Office and  the Office of Public  Advocacy                                                                   
(OPA), in  which there  was a  supplemental request  of about                                                                   
$300,000.  In the  past  such  supplemental requests  had  an                                                                   
accompanying request  for the following year.  In the current                                                                   
budget this  was not the case,  in fact there was  a deficit.                                                                   
He shared  that LFD was concerned  about the ability  of such                                                                   
agencies, which were  case-load driven, to be  able to really                                                                   
absorb the  cuts. He  thought perhaps  the inconsistency  was                                                                   
on purpose.  He expressed that  he knew the executive  branch                                                                   
was working  to reduce costs.  He acknowledged that  they may                                                                   
have  been aware  of  missing  things from  the  supplemental                                                                   
budget to  the FY  16 budget requests,  and were  considering                                                                   
them as planned reductions for FY 16 or FY 17.                                                                                  
Mr.  Teal  pointed out  Section  4  of  the HB  72  Operating                                                                   
     Sec.  4. LEGISLATIVE  INTENT. (a)  It is  the intent  of                                                                   
     the legislature  that the  amounts appropriated  by this                                                                   
     Act are the  full amounts that will be  appropriated for                                                                   
     those  purposes  for the  fiscal  year ending  June  30,                                                                   
Mr.  Teal thought  there was  an  issue with  Section 4,  and                                                                   
asserted  that some  managers  could manage  with the  budget                                                                   
they were given,  and some could not. He considered  it not a                                                                   
management  flaw, but  rather  that certain  areas had  costs                                                                   
that were  uncontrollable.  He used Medicaid  as an  example,                                                                   
as well as fire  suppression. He noted a few  other concerns,                                                                   
including  a $10  million  unallocated  appropriation, and  a                                                                   
legal  opinion  pertaining to  the  unallocated  "contingency                                                                   
funds"  discussed  earlier.  He  clarified that  it  was  not                                                                   
merely  an opinion;  rather it  had been tested  in 1983  and                                                                   
declared   by   the   Superior   Court  of   Alaska   to   be                                                                   
unconstitutional.  LFD  was concerned  that  the funds  could                                                                   
not stay  in the bill  the way it  was presently  drafted. He                                                                   
pointed out  that if  those funds  are removed, the  governor                                                                   
would  have  no money  to  meet  what might  be  supplemental                                                                   
needs. He summarized  it as an argument for  the supplemental                                                                   
"placeholder"  to be in  the budget,  at whatever amount  was                                                                   
2:50:50 PM                                                                                                                    
Mr.   Teal  referenced   the  public   education  fund,   and                                                                   
recognized  there had  been some  confusion.  He referred  to                                                                   
line  49 of  the  Fiscal  Summary,  which showed  a  negative                                                                   
number  of  $113.5  million. He  explained  that  normally  a                                                                   
negative   number  indicated   a  withdrawal  from   savings,                                                                   
however in  this case it indicated  a negative cash  flow. He                                                                   
discussed forward-funding  and pointed  out the amount  going                                                                   
in for FY 17  was $126 million less than was  projected to be                                                                   
needed  for  FY  17. He  explained  that  there  was  nothing                                                                   
technically  incorrect about  the situation,  but it  brought                                                                   
up the  issue of transparency.  He favored making  the amount                                                                   
of  spending and  the  amount  of the  deficit  as clear  and                                                                   
simple  as possible,  and alleged  that the  deficit and  the                                                                   
CBR draw  were essentially the  same thing. He  iterated that                                                                   
when  the legislature  started  drawing money  or failing  to                                                                   
fully  fund  something  in  a reserve  account,  so  that  it                                                                   
appeared  as  if savings  were  being  used, the  fiscal  gap                                                                   
appeared to  be reduced and it  was harder to  understand the                                                                   
balance  of surplus  and deficit.  He went  on to describe  a                                                                   
hypothetical  scenario of  short-funding  the education  fund                                                                   
for FY 17 to  make the deficit appear smaller.  He voiced the                                                                   
concern  that  the  public education  fund,  if  not  filled,                                                                   
would no longer be available as reserves.                                                                                       
2:54:02 PM                                                                                                                    
Mr. Teal  commented that he was  not aware of  the governor's                                                                   
intent  with regard  to the  public  education fund,  however                                                                   
the amount  of short-funding would  not matter  and disguised                                                                   
the amount  of the deficit.  He emphasized the  importance of                                                                   
not  understating  the  deficit   for  the  public  or  other                                                                   
entities.  He opined  that it  was  not clear  to the  public                                                                   
that the short-funding was distorting the deficit.                                                                              
Mr. Teal pointed  out line 46  of the "OMB vs LFD  UGF Fiscal                                                                   
Summary,"  (copy  on  file) showing  a  pre-transfer  surplus                                                                   
deficit  of $3.428  million for  FY  16; and  noted that  OMB                                                                   
emphasized  the   post-transfer  deficit  (line   65  of  the                                                                   
comparative fiscal  summary) and did not have  a pre-transfer                                                                   
deficit  printed  on  its summary.  He  considered  the  pre-                                                                   
transfer  figure to be  more important  in communicating  how                                                                   
the  current   year's  revenues  compared  to   spending  the                                                                   
current  year's  money  before  pulling  money  from  savings                                                                   
accounts.  He   extrapolated  that  money  was   pulled  from                                                                   
savings accounts,  it would easily  reduce the deficit  by $1                                                                   
billion;  however,   in  the  long  term  nothing   had  been                                                                   
accomplished  as the  $1 billion  in other  reserves was  not                                                                   
available to spend.                                                                                                             
Mr.  Teal remarked  that  it was  not  easy  to simplify  the                                                                   
budget  due to  political  considerations.  He discussed  the                                                                   
challenge of  incomplete budget  information conveyed  by the                                                                   
press and  the challenge  for the  public to understand  what                                                                   
the press did not report.                                                                                                       
2:58:23 PM                                                                                                                    
Mr. Teal explained  the third issue was  reappropriations. He                                                                   
noted  that there  were always  reappropriations  and it  was                                                                   
not merely  a governors issue  or an OMB issue.  He explained                                                                   
that reappropriations  could be  from one capital  project to                                                                   
another;  from capital  budget  to operating  budget, or  the                                                                   
reverse.    He    thought    that    capital    to    capital                                                                   
reappropriations  were  fairly  easy, simple  to  understand,                                                                   
were like changing  the scope of a project, and  there was no                                                                   
new  money involved.  He  noted  that confusion  could  arise                                                                   
because reappropriations  crossed fiscal  years, and  did not                                                                   
receive the  scrutiny that  other funds  did. He argued  that                                                                   
in the  present fiscal climate,  perhaps the funds  should go                                                                   
back  to  the GF  in  order  for any  potential  projects  to                                                                   
compete   for  the  funds   with  all   other  projects.   He                                                                   
considered  that such  a process  could  be a  way to  reduce                                                                   
spending because of a change in methodology.                                                                                    
Co-Chair  Neuman clarified  that the point  of putting  funds                                                                   
back into  the GF rather  than reappropriating  would provide                                                                   
clarity  on  explaining  the   budget,  particularly  in  the                                                                   
current fiscal  situation. He  highlighted that public  money                                                                   
was being  spent, and  clarity in  explaining the budget  was                                                                   
crucial.  He added  that  when there  were  reductions in  an                                                                   
agency,  and  they  used  other   funds  to  backfill  agency                                                                   
operations, the  agency was not really reduced.  He expressed                                                                   
concern and  asked Mr. Teal if  it was a normal  practice. He                                                                   
noted that  he had  seen a lot  of agencies participating  in                                                                   
the activity  by using special  use funds and other  means of                                                                   
3:03:26 PM                                                                                                                    
Mr. Teal  thought that it muddied  the water to use  funds in                                                                   
such a way. He  used the example of creating  a Medicaid fund                                                                   
with  $500 million  in it,  and the  subsequent finance  DHSS                                                                   
subcommittee's budget  would not reflect the $500  million of                                                                   
GF.  He  summarized  that  the process  would  not  give  the                                                                   
subcommittee all  the information about the funding  that was                                                                   
used  in that  department. He  urged the  committee to  avoid                                                                   
running money  through funds,  and appropriate general  funds                                                                   
for  shortages in  agencies rather  than filling  a fund  and                                                                   
creating a different  picture for the subcommittee.  Mr. Teal                                                                   
reiterated  the need for  transparency in  order to  have the                                                                   
clearest budget picture.                                                                                                        
Co-Chair  Neuman noted  the approximate  25 percent  turnover                                                                   
in  the   finance  committee   and  reflected  that   it  was                                                                   
important  to have a  system in  place with clear  accounting                                                                   
Ms. Pitney  commented that she  agreed with Mr. Teal  in some                                                                   
cases  but  considered  there  to be  some  cases  that  were                                                                   
different,  such as  direct-service items.  She compared  the                                                                   
difference  in  funds  and  thought   that  the  funds  acted                                                                   
differently.  She thought  that  to the  degree that  offline                                                                   
funds could be  reduced and made to be UGF, there  would be a                                                                   
lot more clarity.                                                                                                               
3:07:19 PM                                                                                                                    
Vice-Chair  Saddler stated  that in  the DHSS  budget he  was                                                                   
working  with were  several  million dollars  of  unallocated                                                                   
reductions; and  asked if Mr.  Teal could address the  use of                                                                   
unallocated reductions  as a way to cut the  budget. Mr. Teal                                                                   
considered the weak  point to be lack of opportunity  for the                                                                   
legislature to deliberate  the effects of the  budget cut. He                                                                   
furthered   that  in   using   unallocated  reductions,   the                                                                   
legislative body  would be ceding the power  of appropriation                                                                   
to  the  executive  branch.  He  asserted  that  it  was  the                                                                   
legislatures   job   to   determine  how   much   money   was                                                                   
appropriated  for what  purpose,  and by  simply saying  "cut                                                                   
somewhere,"  the  legislature  was  failing to  do  its  job.                                                                   
Conversely,  the  unallocated  reduction gave  the  executive                                                                   
branch  the  flexibility they  needed  to  absorb a  cut.  He                                                                   
reminded   the  committee   that  after   the  budgets   were                                                                   
prepared, the  administration needed time to  determine where                                                                   
the cuts could be taken.                                                                                                        
Mr. Teal  referred to the time  needed to formulate  cuts and                                                                   
described  the scenario  as a "huge  offsetting balance."  He                                                                   
considered that  as long as unallocated reductions  were used                                                                   
with that  in mind, they were  not bad, as long as  they were                                                                   
left  unallocated  within  a restricted  area.  He  furthered                                                                   
that   an  unallocated   reduction   or   increment  in   the                                                                   
governor's     office,     with    no     sideboards,     was                                                                   
unconstitutional.   An   unallocated   reduction   within   a                                                                   
department had  some legal challenges  with it, but  was much                                                                   
less legally  problematic when it  had confines and  could be                                                                   
spread between multiple allocations.                                                                                            
Representative  Gara  asked  about  a  number  he  had  heard                                                                   
regarding  a  potential  $1.5   billion  in  savings  through                                                                   
cutting  all  state  employees.  Furthermore,  he  had  heard                                                                   
discussion  about a $3.5  billion cut  from the $5.6  billion                                                                   
UGF  budget  and wondered  if  Mr.  Teal  viewed the  cut  as                                                                   
realistic.  Mr.   Teal  responded  that  both   numbers  were                                                                   
factual, and explained  there was roughly $2.6  billion spent                                                                   
on personal  services. He clarified  that only about  half of                                                                   
state government  positions  were funded  with GF, with  some                                                                   
being  only  partially  GF funded.  Mr.  Teal  discussed  the                                                                   
hypothetical   $3.5   billion   cut  and   referred   to   an                                                                   
introduction  in the  governor's  overview  which included  a                                                                   
list of  "hard to  cut items"  items, including K-12  formula                                                                   
funding  (roughly  $1.3  billion),   Medicaid  (roughly  $700                                                                   
million),  and  debt  service  (roughly  $200  million).  The                                                                   
items totaled  $2.2 billion,  which was  equal to the  amount                                                                   
of UGF revenue  that the state had. He concluded  that if the                                                                   
legislature was  going to try  and cut $3.5 billion  from the                                                                   
budget in  order to match revenue,  the state could  have the                                                                   
three  items listed  and nothing  else, or  find cuts in  the                                                                   
"hard to  cut" areas.  He did  not think  it was possible  to                                                                   
cut $3.5 billion from the budget.                                                                                               
3:13:08 PM                                                                                                                    
Co-Chair  Neuman commented  that the  departments had  worked                                                                   
hard  to  uphold  the  governor's   proposed  reductions.  He                                                                   
acknowledged  the difficulty  of  reducing the  budget by  $1                                                                   
billion,  and recounted  that the  previous year's  operating                                                                   
budget  had  been reduced  by  $70  million. He  opined  that                                                                   
cutting  the state  government  drastically  could result  in                                                                   
inefficiency.  He stated  that  the committee  would look  at                                                                   
the  Governor's  amended  budget  and have  a  discussion  to                                                                   
ensure clarity  in the  budget process.  He referred  to DHSS                                                                   
and a bubble  chart they created to reflect  their priorities                                                                   
and use as a  budgeting tool. The chart also  illustrated the                                                                   
cross-overs  between   departments  which  enabled   them  to                                                                   
identify efficiencies.  He concluded that his  suggestion was                                                                   
to  try and  utilize the  same  methodology with  departments                                                                   
and then create a budget from the work.                                                                                         
3:18:06 PM                                                                                                                    
Co-Chair Neuman continued  to note that he had  asked LFD and                                                                   
the commissioners  to examine laws, regulations  and policies                                                                   
for  opportunities  for  savings.  Statutes  and  regulations                                                                   
could  be  examined   for  additional  personnel   costs  and                                                                   
procedures  that did  not make  fiscal sense.  He added  that                                                                   
the  committee would  be  unlikely  to pass  any  legislation                                                                   
with  a sizeable  fiscal note  unless  it was  very good.  He                                                                   
forecast  that by  the subsequent  year there  would be  more                                                                   
information on  the price of  oil, the revenue  forecast, and                                                                   
a profile  of the size of  government the state  could afford                                                                   
to  fund. He  stressed  the need  for  building a  government                                                                   
based  on   the  funds  that   were  available   rather  than                                                                   
continuing  to use the  state savings,  would last  about 2.5                                                                   
years without  utilizing the permanent  fund. He  thought the                                                                   
committee  needed a current  plan to  address the deficit  in                                                                   
forthcoming  years  as  well   as  the  current  deficit.  He                                                                   
supported giving  the departments  the tools they  needed for                                                                   
a strategy to identify and protect core missions.                                                                               
3:22:13 PM                                                                                                                    
Representative  Guttenberg relayed  that  he appreciated  Co-                                                                   
Chair  Neuman's   statement  and   goals.  He  stressed   the                                                                   
importance of  defining the core  function of  government. He                                                                   
expressed concern  with some of the cuts being  proposed; and                                                                   
mentioned  prisons, job training,  therapeutic programs,  and                                                                   
the  system  of  dealing with  societal  woes.  He  discussed                                                                   
stresses  on society  in the  long run,  and elaborated  that                                                                   
perhaps  in  the   future  the  state  would   see  resultant                                                                   
increases  in  corrections.  He  wondered  how  it  would  be                                                                   
possible to  get through  the work in  a 90-day session,  and                                                                   
noted  the  difference  in what  could  be  accomplished  and                                                                   
examined  in a  120-day session.  He discussed  the depth  of                                                                   
understanding needed  to understand the cascading  effects of                                                                   
a diminished budget. He mentioned the concept of "silo-                                                                         
Co-Chair Neuman noted  that next week the committee  would be                                                                   
hearing  about a  recidivism/reduction group  and its  goals.                                                                   
Co-Chair Neuman thanked the testifiers, as well as                                                                              
department staff in attendance.                                                                                                 

Document Name Date/Time Subjects
16amd_deptsummary_2-5-15.pdf HFIN 2/12/2015 1:30:00 PM
HB 72
16amd_deptsummary_ugf_2-5-15.pdf HFIN 2/12/2015 1:30:00 PM
HB 72
ABS Worldview 2-11-15.pdf HFIN 2/12/2015 1:30:00 PM
HB 72
Final_FY2016_Gov_Amended_Budget_Summary_2-5-15.pdf HFIN 2/12/2015 1:30:00 PM
HB 72
OMB vs LFD UGF Fiscal Summary FY15-FY16 2.11.15.pdf HFIN 2/12/2015 1:30:00 PM
2 12 15 FY15 Mgt Plan to FY16 GovEnd.pdf HFIN 2/12/2015 1:30:00 PM