Legislature(2015 - 2016)HOUSE FINANCE 519

03/11/2015 09:00 AM House FINANCE

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09:02:55 AM Start
09:04:25 AM HB72 || HB73
10:00:42 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time Change --
Moved CSHB 72(FIN) Out of Committee
Moved CSHB 73(FIN) Out of Committee
+ 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."                                                                                                        
Co-Chair Neuman explained the agenda for the meeting.                                                                           
Co-Chair  Thompson  MOVED to  REPORT  CSHB  72(FIN), out  of                                                                    
committee with individual recommendations.                                                                                      
Co-Chair Neuman OBJECTED for discussion.                                                                                        
9:04:25 AM                                                                                                                    
PETE ECKLUND, STAFF,  REPRESENTATIVE MARK NEUMAN, introduced                                                                    
himself and indicated he would  be reviewing the new numbers                                                                    
resulting  from the  amendments  from the  previous day.  He                                                                    
advised that  he would be reporting  in unrestricted general                                                                    
funds  (UGF) because  the difference  between UGF,  revenue,                                                                    
and  expenditures equaled  the state's  fiscal gap.  The net                                                                    
effect of all  of the different amendments  adopted was that                                                                    
the  committee added  $10,491,000 UGF.  The total  reduction                                                                    
from FY  15, the current  fiscal year, in  agency operations                                                                    
non-formula      programs     was      $228,972,000     UGF.                                                                    
When adding  the formula programs from  the operating budget                                                                    
including  numbers and  language,  formula, and  non-formula                                                                    
UGF  the state  was  $376,931,000 below  the current  fiscal                                                                    
year.  He  reported  that  when   people  thought  of  state                                                                    
government they typically thought  of agency operations non-                                                                    
formula programs. There was a  10 percent reduction over all                                                                    
of the  agencies for non-formula  programs from  the current                                                                    
fiscal year. He furthered that  if the operating bill passed                                                                    
the full legislature in its  current form and if the capital                                                                    
budget remained  at its currently  level of  $158.7 million,                                                                    
the  pre-transfer change  in UGF  revenues from  the current                                                                    
fiscal year would equal a  reduction in the budget of $560.5                                                                    
million  from the  current fiscal  year. He  added that  the                                                                    
reduction  was an  accomplishment. The  pre-transfer deficit                                                                    
if revenues stayed as projected would be $3.26 billion.                                                                         
9:07:29 AM                                                                                                                    
Representative  Gara asked  about $10  million UGF  that was                                                                    
mentioned the  previous day. There  were funds taken  out of                                                                    
the Alaska  Higher Education Investment  Fund which  were in                                                                    
the general  fund (GF). He  asked if Mr.  Ecklund considered                                                                    
those funds unrestricted. He also  asked if the money was in                                                                    
addition to the $10 million.                                                                                                    
Mr.  Ecklund responded  the  funds  were designated  general                                                                    
funds (DGF) rather than UGF.                                                                                                    
Representative Gara commented that  they were in the general                                                                    
fund and asked how much was added.                                                                                              
Mr. Ecklund responded $7.7 million.                                                                                             
Representative  Gara  asked  if  the  two  amounts  together                                                                    
totaled about $17 million to $18 million.                                                                                       
Mr. Ecklund responded, "Correct."                                                                                               
Co-Chair Neuman  asked Mr.  Ecklund if  $7 million  added to                                                                    
supplement  funds for  other education  programs was  in the                                                                    
higher education fund. He wondered  if it was different than                                                                    
the GF.                                                                                                                         
Mr. Ecklund  responded affirmatively. He explained  that the                                                                    
higher education fund  had been classified as  DGF. The fund                                                                    
was  created  to provide  scholarships  and  for the  Alaska                                                                    
Performance Scholarship. The money  used in the previous day                                                                    
was  for programs  associated  with  the Alaska  Performance                                                                    
Co-Chair Neuman  asked if there were  specific purposes that                                                                    
the  funds could  be used  and  strict guidelines  upholding                                                                    
their use of which the committee abided.                                                                                        
Mr. Ecklund pointed  out that there were  no dedicated funds                                                                    
per   Alaska's   Constitution.   However,  the   state   had                                                                    
designated  funds. The  state stayed  within the  guidelines                                                                    
regarding the use of DGF.                                                                                                       
Co-Chair  Neuman asked  if there  was an  addition of  about                                                                    
$10.4 UGF.                                                                                                                      
Mr. Ecklund responded affirmatively.                                                                                            
Co-Chair Neuman WITHDREW his OBJECTION.                                                                                         
Representative Gara maintained his objection.                                                                                   
9:10:04 AM                                                                                                                    
Representative Gara stated he could  not support the bill in                                                                    
its  current  form. He  suggested  that  there was  still  a                                                                    
budget  deficit of  between $3.5  billion in  the governor's                                                                    
version of the bill and $3.4  billion in the current form of                                                                    
the bill.  Under either version  the state would run  out of                                                                    
savings in 2  years. He suggested that it was  not the fault                                                                    
of  the committee  and that  even if  every GF  funded state                                                                    
employee  was let  go the  state would  still not  solve the                                                                    
budget gap.  He furthered  that without shutting  down state                                                                    
government  and  doing  away   with  agencies  such  as  the                                                                    
Department of Public  Safety and most things  people rely on                                                                    
in  the state  it was  impossible  to cut  $3.5 billion.  He                                                                    
mentioned  that  both  Republicans and  Democrats  tried  to                                                                    
identify waste and  answer why the state was  in its current                                                                    
Representative  Gara was  very disappointed  that the  state                                                                    
did  not except  Medicaid expansion.  He estimated  an extra                                                                    
savings  of $6.6  billion  in the  budget  by accepting  the                                                                    
expansion. He added that it  was 4 thousand jobs, healthcare                                                                    
for people, and reduced premiums  for others in order not to                                                                    
have to pay for uncompensated emergency room care.                                                                              
Representative Gara stressed  his belief in Pre-Kindergarten                                                                    
(Pre-K)  education.  It  was  proven  to  increase  academic                                                                    
achievement,  to improve  college graduation  rates, and  to                                                                    
decrease the cost of jail.  The studies were evidence-based.                                                                    
The  finance  committee  removed every  single  state-funded                                                                    
Pre-K  program  in the  meeting  the  previous day.  He  was                                                                    
unsure how many other states  have taken the same action. He                                                                    
understood that at least 40  other states had statewide Pre-                                                                    
K  programs.  He suggested  that  Alaska  barely had  state-                                                                    
pocked Pre-K. A  couple of school districts had  a Pre-K and                                                                    
federally funded Head  Start Program of which  the state had                                                                    
increased  funding  twice  in the  previous  20  years.  The                                                                    
waiting  list   for  Head  Start   was  extensive.   He  was                                                                    
disappointed that  the committee  was unable to  pass either                                                                    
version of  the Kindergarten through 12  funding amendments.                                                                    
The more  modest amendment would have  reinstated the amount                                                                    
of money that  was passed in the prior  year still resulting                                                                    
in  cuts  in  the  Mat-Su,  Fairbanks,  and  in  Juneau.  He                                                                    
furthered that by  not restoring the amount  of money passed                                                                    
in  the  previous  year  there   would  likely  be  cuts  in                                                                    
Anchorage.  Among the  school  districts  Anchorage was  the                                                                    
best off  financially of  because of  the reserve  fund that                                                                    
was established.  He thought that  other districts  would be                                                                    
negatively impacted.  He supposed  it would be  another year                                                                    
of   teacher,  guidance   counselor,  or   career  counselor                                                                    
reductions. He did not see  how to move education forward in                                                                    
a  state  that  had  the  lowest  graduation  rates  in  the                                                                    
Representative  Gara brought  up  his disappointment  around                                                                    
missing  the  opportunity to  make  the  largest strides  in                                                                    
fixing the  system for abused  and neglected children  at no                                                                    
cost. He claimed the department had  done a very good job in                                                                    
finding available  federal funds to replace  state spending.                                                                    
There  had been  a  proposal to  use the  money  to fix  the                                                                    
foster care  system curing the  state's 40  percent homeless                                                                    
rate and 24 percent incarceration  rate for foster youth. He                                                                    
opined  that these  issues could  have been  fixed for  zero                                                                    
cost to the  state and made things much better  for the 2400                                                                    
youth  in foster  care. He  hoped  it was  a discussion  the                                                                    
committee  could have  going forward  because  he knew  that                                                                    
people on the committee cared.  He was uncertain how to make                                                                    
the  situation  better  when  a  study  had  been  conducted                                                                    
confirming the need for an addition  of 50 staff in order to                                                                    
provide  basic  services.  Since  the study  the  number  of                                                                    
foster children  had increased by  about 500.  He reiterated                                                                    
that  the  finance committee  could  have  taken action  the                                                                    
previous day to help the system  at no cost to the state. He                                                                    
stated that  he was willing to  work with folks and  that he                                                                    
had  been  asked  to  find  cost  efficiencies.  There  were                                                                    
programs  started to  provide  free  laptops and  discounted                                                                    
clothing  to foster  youth.  He had  also  made attempts  to                                                                    
start  a   free  program  to   provide  foster   youth  with                                                                    
imagination library books. He  reiterated that the state was                                                                    
responsible for  improving the lives  of foster  children in                                                                    
its guardianship.  He discussed having proposed  a number of                                                                    
reductions  including cuts  to  money  appropriated for  the                                                                    
Susitna  Damn that  was not  obligated or  needed. It  was a                                                                    
project that would serve the  same people that the three gas                                                                    
line  proposals would  serve. All  4 projects  would provide                                                                    
excess power. He  believed the state did not  need 4 sources                                                                    
of excess power  while the state was in a  fiscal crisis. He                                                                    
concluded  that the  proposed  cuts did  not  move the  ball                                                                    
forward  enough  leaving the  state  running  out of  saving                                                                    
within  2  years.  He  was  disappointed  but  hopeful  that                                                                    
members  could find  a way  to  work together  to solve  the                                                                    
state's problems.  He added  that he  did not  want to  be a                                                                    
state without Pre-K.                                                                                                            
9:16:45 AM                                                                                                                    
Co-Chair Neuman  clarified that members would  only have one                                                                    
opportunity to make closing remarks.                                                                                            
Representative Gattis  indicated that  she was  in agreement                                                                    
with Representative  Gara about being disappointed.  She was                                                                    
not  sure  that  Alaskans  recognized  that  the  state  was                                                                    
jumping off a  fiscal cliff. Her constituents  had been very                                                                    
clear that  the legislature  did not cut  enough out  of the                                                                    
budget. In  the spirit of  compromise items were  added back                                                                    
in that  she personally would not  have reinstated. However,                                                                    
in the  same spirit  she agreed  to add  items back  in. She                                                                    
stressed  the  need  to  show   a  sense  of  leadership  by                                                                    
recognizing  where the  state was  at financially.  Although                                                                    
she struggled with adding $10  million back into the budget,                                                                    
she acted in the spirit  of compromise. She hoped both sides                                                                    
would recognize that the state did not have the money.                                                                          
9:18:25 AM                                                                                                                    
Co-Chair  Thompson reported  that he  was a  little confused                                                                    
about  Representative Gara's  comments in  terms of  cutting                                                                    
from the budget and reinstating  items in the budget. He was                                                                    
aware that folks  would be suffering from the  cuts that had                                                                    
been made.  However, in looking  at the following  year, the                                                                    
circumstances  would   be  more  difficult.   He  forewarned                                                                    
listeners  that  there  would   be  further  reductions.  He                                                                    
commended the  committee for  the hard work  it had  done to                                                                    
minimize devastating  consequences for  people in  the state                                                                    
and  thanked  the co-chairman  for  the  many hours  he  had                                                                    
dedicated to  try to make  thoughtful reductions.  He opined                                                                    
that the committee would be  working harder than it ever had                                                                    
over  the  following  summer  months  digging  into  program                                                                    
details to determine  what actions to take.  He believed the                                                                    
stage was  being set for  the following session.  He thanked                                                                    
the finance committee as a whole for its hard work.                                                                             
9:20:11 AM                                                                                                                    
Representative Pruitt agreed that  the biggest challenge for                                                                    
the  state was  a lack  of money.  He admitted  that he  was                                                                    
uncomfortable with  moving the  bill forward because  of the                                                                    
withdrawal from savings  that the state would  have to make.                                                                    
He looked  forward to seeing  what the Senate would  do with                                                                    
the bill. He hoped it  would consider additional cuts to the                                                                    
budget.  He  anticipated  working   with  the  co-chairs  in                                                                    
further addressing  the budget  issues over the  interim. He                                                                    
praised  the committee  for the  efforts  it had  made in  a                                                                    
short period of about 3 weeks.  He admitted there were a few                                                                    
items he had  had to compromise on that were  added back in.                                                                    
He recognized  his colleagues that had  also compromised. He                                                                    
wanted to  remind Alaskans that  prior to applying  the cuts                                                                    
that were  made it  equaled $20  thousand per  household. If                                                                    
committee members did  not spend its interim  working on the                                                                    
budget issues  the public would  be sent into a  spiral that                                                                    
the state  had never seen  before. He argued that  oil would                                                                    
not  save  the  state   in  its  current  circumstances.  He                                                                    
furthered that if oil came back  it would be the worst thing                                                                    
for Alaska, because every time  prior oil came and saved the                                                                    
state it  prolonged making the decisions  necessary which in                                                                    
turn resulted  in the current  situation. He  looked forward                                                                    
to  working with  his co-chairs  and fellow  members in  the                                                                    
following  interim to  make  an effort  to  further cut  the                                                                    
budget   and  to   have  deeper   discussions  about   items                                                                    
untouchable in the  past such as education  and Medicare. He                                                                    
did not want $20 thousand to  land on the shoulders of every                                                                    
Alaskan household. He thanked everyone for their efforts.                                                                       
9:23:33 AM                                                                                                                    
Vice-Chair Saddler thanked the  co-chairs for their guidance                                                                    
in a  thorough and  detail-oriented open budget  process. He                                                                    
opined  that cutting  $225  million from  the  budget was  a                                                                    
tremendous achievement  not to be taken  lightly. He thanked                                                                    
the  House  Finance  Committee   staff,  the  staff  of  the                                                                    
Legislative  Finance Division,  and his  personal staff  for                                                                    
their diligent  efforts. As  a former  staffer he  was aware                                                                    
that the legislators either receive  the credit or the blame                                                                    
but  could  not   do  the  work  without   their  staff.  He                                                                    
emphasized   that  the   state   faced  significant   budget                                                                    
challenges  with   less  money  to  spend.   The  state  had                                                                    
unlimited needs  and desires but  limited resources.  It was                                                                    
the  mission  of  legislators to  make  some  difficult  and                                                                    
unpleasant decisions but they  were responsible decisions in                                                                    
the face  of the budgets  challenges. He conveyed  that some                                                                    
people wanted  larger reductions while others  wanted to add                                                                    
funding back  into the budget.  He pointed to  the education                                                                    
advocates looking for more and  more money. He stressed that                                                                    
any  budget   was  a  compromise.  He   suggested  that  the                                                                    
operating  budget was  a complicated  document and  process.                                                                    
The bottom  line was that  a $225 million reduction  in non-                                                                    
formula  dollars was  a  tremendous  achievement. There  was                                                                    
also  a $377  million reduction  in formula  and non-formula                                                                    
dollars. It was  a great start but the budget  would have to                                                                    
be significantly  reduced. He  estimated that  the committee                                                                    
would return  with a sharper perspective  on the departments                                                                    
and their budgets after a  long, hard-working summer. He did                                                                    
not  believe the  deficit was  going away.  His constituents                                                                    
that he had heard from wanted additional cuts.                                                                                  
9:25:43 AM                                                                                                                    
Representative  Edgmon commented  on the  excellent job  the                                                                    
co-chairs  had done  in shepherding  members through  a very                                                                    
difficult  process.  He  admitted   it  had  been  the  most                                                                    
difficult process he had experienced  over the several years                                                                    
as  a member  of  the House  Finance  Committee cutting  the                                                                    
budget in a significant way.  The process involved many hard                                                                    
choices  including saving  one  program  while taking  money                                                                    
from another. Value  judgements were having to be  made in a                                                                    
very  short  period of  time.  He  agreed  with one  of  his                                                                    
colleagues  that the  budget  reductions  were long-term  in                                                                    
nature.  He thought  part of  the challenge  for legislators                                                                    
would be  to educate the  public and to impress  upon people                                                                    
the  reality that  the state  would  have to  look at  other                                                                    
sources  of  revenue.  He believed  it  was  incumbent  upon                                                                    
committee  members   as  they  looked  at   agency  budgets,                                                                    
scrutinized additional  reductions and downsizing,  and made                                                                    
decisions   about    priorities   that    they   disseminate                                                                    
information  to constituents  in the  interim. He  suggested                                                                    
that  the  state might  be  entering  into an  entirely  new                                                                    
fiscal  regime  that  no  one anticipated  6  to  10  months                                                                    
previously. He  agreed with  Representative Pruitt  that the                                                                    
state  might be  turning a  corner  where oil  would not  be                                                                    
saving  the state  again, a  scary reality  in his  opinion.                                                                    
Arguably  the  cuts  that  the   committee  made  were  very                                                                    
judicious cuts  but at  the same  time it  was the  start of                                                                    
what  could be  many  years of  realigning state  government                                                                    
with  the fiscal  reality that  changed so  dramatically. He                                                                    
reflected that in 2008 the  state was earning $10 billion to                                                                    
$11 billion in oil revenue.  Currently the state was earning                                                                    
only $2.1 billion  to $2.2 billion in oil revenue  yet had a                                                                    
budget north  of $5 billion  including reductions.  He would                                                                    
continue to  work with his  constituents and  encouraged his                                                                    
colleagues to do the same.  He closed thanking the committee                                                                    
and reiterated that it was just a start.                                                                                        
9:28:06 AM                                                                                                                    
Representative  Guttenberg thanked  the committee  and staff                                                                    
for their diligent work. He  commented that the state budget                                                                    
would have to return to  sustainable levels. He offered that                                                                    
many  people did  not truly  understand  the state's  fiscal                                                                    
situation. He suggested that people  outside of the building                                                                    
did not understand that if the  price of oil shot back up it                                                                    
would not  mean the state  would be relieved of  its current                                                                    
situation. There  was a problem  with production  levels and                                                                    
pass-through in the  pipeline. He indicated that  he had had                                                                    
an amendment that addressed a  $200 million reduction in the                                                                    
current year's budget,  but all it did was move  it down the                                                                    
road. He  was concerned with  where the burden of  the state                                                                    
would fall  and did not  feel the issue had  been addressed.                                                                    
There  were  two  sides  of the  ledger  sheet,  income  and                                                                    
expenses.  He thought  that in  all other  states a  finance                                                                    
committee such as Alaska's would  only handle one of the two                                                                    
functions.  In  Alaska  the committee  was  responsible  for                                                                    
addressing  both.  He opined  that  the  committee had  only                                                                    
addressed  one side  of the  ledger.  He did  not think  the                                                                    
public fully  understood the  nature of  the fiscal  gap and                                                                    
its expansiveness.  The gap  was so large  that even  if all                                                                    
state employees were  taken off of the  payroll Alaska would                                                                    
remain  in a  fiscal crisis  with a  $3 billion  deficit. He                                                                    
surmised that  it would  cost the state  more by  not taking                                                                    
certain  actions.   He  cited   the  example   of  increased                                                                    
recidivism rates as a result  of not being proactive costing                                                                    
the state additional money. He  proposed thinking more about                                                                    
the nature of  the state and its mission.  Regardless of the                                                                    
budget, he thought the legislature  had to consider building                                                                    
the  state  to  be  sustainable. He  pointed  out  that  the                                                                    
development  of  the  internet   had  helped  to  close  the                                                                    
challenge  of distance  within Alaska.  It was  difficult to                                                                    
provide services,  such as  educational services,  to people                                                                    
in  rural  areas  off  the road  system.  The  internet  and                                                                    
technology have helped greatly in  filling the distance gap.                                                                    
He  reiterated  the  question  he  asked  about  how  Alaska                                                                    
defined itself.  He did not  feel he had  enough information                                                                    
to  make  appropriate decreases  to  the  budget. He  simply                                                                    
wanted to have a sustained  society. He shared his amazement                                                                    
in coming  to Alaska  as a  young man  in 1969  witnessing a                                                                    
boom cycle similar to a scene  in a Wild West show. He hoped                                                                    
the state  was on  the cusp of  a huge  economic development                                                                    
such  as another  major oil  line.  He did  not believe  the                                                                    
state  was prepared  for such  a  project as  he thought  it                                                                    
should  be. He  mentioned that  besides the  pipeline itself                                                                    
the  economic,   social,  and   moral  impacts   to  Alaskan                                                                    
communities needed to be considered.                                                                                            
Representative  Guttenberg  pointed   out  that  the  budget                                                                    
remained  a living  document, subject  to  change until  the                                                                    
final  vote was  taken. He  relayed  that he  would have  to                                                                    
return home  to discuss  the budget with  the people  in his                                                                    
community. He would  be talking not so much  in number terms                                                                    
but in terms  of how the budget affected  people's lives. He                                                                    
conveyed  that  additional  planning and  preparation  would                                                                    
have to  be done.  He suggested that  there were  some folks                                                                    
that  were  always  prepared.  He  wondered  if  the  budget                                                                    
prepared the state for the future.  He did not think it did.                                                                    
The money that  was reduced in the budget did  not have much                                                                    
of an effect  on the graphs to show what  was needed to fill                                                                    
the  gap. He  believed there  were some  small numbers  that                                                                    
would  have made  a  large difference  for  many people.  He                                                                    
believed that best  thing the state could do  was to provide                                                                    
opportunities  to its  children. He  expressed his  concerns                                                                    
about lost  opportunities for  kids as  a result  of certain                                                                    
cuts from the  budget. He remarked that  the legislature was                                                                    
midway through the session and that things could change.                                                                        
9:37:00 AM                                                                                                                    
Representative  Wilson acknowledged  that  the meeting  felt                                                                    
like  a   funeral.  However,  she  looked   at  the  state's                                                                    
situation  as  an  opportunity  for  private  enterprise  to                                                                    
flourish. Private  businesses would have the  opportunity to                                                                    
step  into providing  services  previously  provided by  the                                                                    
state. She  suggested that the Power  Cost Equalization fund                                                                    
could be  used in  certain areas to  provide more  energy in                                                                    
the form  of windmills and dams  in order to serve  a larger                                                                    
need.  She  also  mentioned the  possibility  of  using  the                                                                    
higher education funds  for other educational opportunities.                                                                    
She opined that it was never  the intent of the state to pay                                                                    
for everything. She claimed that  private businesses were at                                                                    
the  bottom   because  they  could  not   compete  with  the                                                                    
previously large  state coffers.  At present, the  state was                                                                    
being forced  to step  back. She  reported that  most states                                                                    
contributed 18  percent to their universities  because there                                                                    
were other ways to fund  them. She looked forward to working                                                                    
with  the regents  examining  new models  and  how to  apply                                                                    
them. She  suggested taking some of  the state's educational                                                                    
entities and combining them into  an amazing opportunity for                                                                    
Alaska's students. She was excited  about what it might mean                                                                    
for  the state.  The state  had the  opportunity to  grow in                                                                    
areas that  it never had  a chance to explore.  She asserted                                                                    
that the  entrepreneurship in the  state would  show amazing                                                                    
things. She agreed  that the state was facing  somewhat of a                                                                    
death of  the government system  but did not believe  it was                                                                    
necessarily bad. She  was excited to see  what would happen.                                                                    
She thought of  those who came to Alaska,  they either hated                                                                    
it or loved it. Those who  hated it left and those who loved                                                                    
it  made it  their home.  She furthered  that people  had an                                                                    
opportunity in Alaska  that no other state  could offer. She                                                                    
affirmed  that the  state  was facing  hard  cuts which  she                                                                    
supposed should have been done  much earlier. She added that                                                                    
the  state  got  into  things  it  never  belonged  in.  She                                                                    
anticipated seeing a  new style of government  and avowed it                                                                    
would  be  a  better  state  as  a  result.  The  state  was                                                                    
essentially letting  folks take their dreams,  utilize them,                                                                    
and  make the  lives for  Alaskans better.  Government would                                                                    
not  be  getting  in  the  way  of  residents.  She  thanked                                                                    
committee  members,  particularly  the chairman,  for  their                                                                    
hard work. She  reported that she would be  out in different                                                                    
areas around Alaska  in the summer to  conduct the necessary                                                                    
work required.                                                                                                                  
9:41:19 AM                                                                                                                    
Representative Munoz  thanked the  co-chairs and  gave kudos                                                                    
to  the  committee  members.   She  thought  some  difficult                                                                    
decisions had been made. When  members found that some areas                                                                    
of the  budget had  been cut too  deeply, the  committee was                                                                    
willing   to  entertain   revisions  to   the  budget.   She                                                                    
appreciated the  fair process. She  agreed that it  would be                                                                    
an  ongoing  effort.  She was  aligned  with  Representative                                                                    
Wilson about  Alaskans being very resilient.  Alaskans would                                                                    
come together to find solutions  and look at doing things in                                                                    
more  innovative  ways.  She  believed  it  was  a  time  of                                                                    
opportunity and challenge.                                                                                                      
9:42:15 AM                                                                                                                    
Representative Kawasaki  appreciated the  committee process.                                                                    
He  thought  cuts were  substantial  including  cuts to  the                                                                    
university,   the   Department   of  Labor   and   Workforce                                                                    
Development, programs  dealing with  seniors, and  the youth                                                                    
courts.  He appreciated  members  coming forward  to try  to                                                                    
find  funding  to support  such  programs  and agencies.  He                                                                    
recognized that it  was a tough budget year  and he believed                                                                    
that  significant cuts  were needed.  However, he  felt that                                                                    
the cuts  should not be  levied against the  most vulnerable                                                                    
people  in   the  state  like  seniors   and  children.  The                                                                    
legislature   cut  things   substantially   such  as   early                                                                    
education  that  has  proved  to   have  a  huge  return  on                                                                    
investment. He believed the state  would pay for that choice                                                                    
into  the  future  with higher  incarceration  costs,  court                                                                    
fees,  and costs  associated with  public  safety. He  added                                                                    
that there was  a significant amount of work to  be done. He                                                                    
found it challenging because  his constituents had expressed                                                                    
their desire to  see additional cuts. He  thought they would                                                                    
want to know  why the legislature increased the  oil and gas                                                                    
tax credit  section by 12  percent in the following  year to                                                                    
$700 million  while the pipeline  continued to  decline. The                                                                    
legislature was  spending a significant  amount of  money on                                                                    
things such  as oil and  gas development. He  suggested that                                                                    
the state  had been  promised a million  barrels of  oil. If                                                                    
the state  could get to  a million  barrels of oil  it would                                                                    
also have a budget that worked.  He claimed that under SB 21                                                                    
[Legislation passed  in 2013 Titled: Oil  and Gas Production                                                                    
Tax], even  if the price  per barrel increased to  a certain                                                                    
point, it  did not  help at  the state's  current production                                                                    
rates. He  reiterated that certain  cuts had to be  made but                                                                    
not levied on the backs of the most vulnerable Alaskans.                                                                        
9:44:40 AM                                                                                                                    
Co-Chair Neuman  explained that the House  Finance Committee                                                                    
started the budget process with  the fiscal plan proposed by                                                                    
Governor  Walker consisting  of  an  alteration of  Governor                                                                    
Parnell's  budget from  December 15,  2014. Governor  Walker                                                                    
and his  staff, brand new  to their jobs,  worked diligently                                                                    
to  craft a  budget  the legislature  could  work with.  The                                                                    
committee  started  its  budget  process  with  hearings  of                                                                    
department overviews within the  first two weeks of session.                                                                    
He suspected the overview hearings  were completed in record                                                                    
time. The  finance subcommittees started meeting  within the                                                                    
first week of February two to  three times per week in order                                                                    
to  review  the  work  of   each  department.  The  governor                                                                    
submitted  his  amended  budget three  weeks  prior  to  the                                                                    
subcommittees closing  out their  budgets. The  numbers were                                                                    
submitted  by  the body  as  a  whole  as  a result  of  the                                                                    
committee  process.  The  current  budget in  front  of  the                                                                    
committee  was   the  budget  submitted  by   the  House  of                                                                    
Representatives  including  Majority  members  and  Minority                                                                    
members alike. He posed the  question about whether everyone                                                                    
on the committee  was happy with all of  the budget numbers.                                                                    
He suggested that no one was  happy with all of the numbers.                                                                    
Some  members  would  cut  more and  some  would  cut  less.                                                                    
However  it was  a committee  process. He  affirmed that  he                                                                    
upheld one standard; to make  sure to preserve the committee                                                                    
Co-Chair  Neuman reported  that there  had been  discussions                                                                    
about people being disappointed in  the budget and some not.                                                                    
He announced  that the committee  had reduced the  budget by                                                                    
$377 million  from the prior  year in agency  operations. In                                                                    
the  previous  year  the  state  had  faced  a  $51  million                                                                    
reduction.  He  suggested that  a  450  percent increase  in                                                                    
reductions   was   significant.    He   wondered   how   the                                                                    
circumstance came  to be.  He asked  if the  legislature had                                                                    
spent  irresponsibly. He  believed  that circumstances  came                                                                    
about because  of a 60  percent reduction in  state revenues                                                                    
in the prior 6 months.  Alaska was vulnerable because it did                                                                    
not  diversify its  economy having  only  one major  revenue                                                                    
source  making  up  90  percent if  its  economic  base.  He                                                                    
stressed the need to work  together to diversify the state's                                                                    
economy developing more of Alaska's  resources. Alaska was a                                                                    
resource  development   state  and  it  needed   to  provide                                                                    
opportunities  for   private  industries  to   invest  their                                                                    
dollars  into  Alaska.  The  state   did  not  have  capital                                                                    
dollars.  The  state  needs   to  provide  opportunities  to                                                                    
private  businesses   so  they  invest  their   dollars.  He                                                                    
reiterated that  the current budget  deficit was due  to the                                                                    
loss of  60 percent of the  state's revenue in 6  months. He                                                                    
was proud  of the work  performed by committee  members. The                                                                    
committee  heard public  testimony and  added an  additional                                                                    
day  for people  to share  their comments.  Approximately 20                                                                    
hours of public testimony  was heard. The committee received                                                                    
between  800 and  1000 emails,  all  of which  he had  read.                                                                    
There  were  over 500  people  who  had the  opportunity  to                                                                    
provide   public  testimony.   The  committee   listened  to                                                                    
Alaskans  across  the  state and  developed  a  budget  that                                                                    
represented every  one of the emails  received as testimony.                                                                    
The committee developed a budget  that represented the views                                                                    
of the  public and of  legislators in a combined  effort. It                                                                    
was the responsibility of committee  members to dig into the                                                                    
budget to a greater extent  than the public. Since the first                                                                    
day of session everyone had been working on the budget.                                                                         
9:49:47 AM                                                                                                                    
Co-Chair Neuman  stated that the  committee planned  to work                                                                    
throughout  the summer.  He suggested  that finance  members                                                                    
needed  to go  out to  their communities  to make  sure they                                                                    
were better  informed about the committee's  process. He was                                                                    
dedicated to  doing so. He  talked about the need  to remove                                                                    
statues that remained  on the books that  caused agencies to                                                                    
have  larger  budgets.  He  asked  the  Legislative  Finance                                                                    
Division to review fiscal notes  from the previous 10 years.                                                                    
There was  a document that  reflected a review  of increases                                                                    
in  personnel costs  and GF  spending. There  was a  need to                                                                    
remove  repeal  laws that  resulted  in  increased costs  to                                                                    
departments. He  added that somethings that  worked 10 years                                                                    
prior did  not work  currently. He stated  that there  was a                                                                    
need to  look at whether  certain laws made fiscal  sense in                                                                    
the current  climate, whether they made  good business sense                                                                    
to encourage investment, or whether  they made common sense.                                                                    
These options would  help to further reduce  the budget. His                                                                    
office implemented  a recidivism reduction group  through an                                                                    
amendment in HB  266 [the operating budget  bill from 2014].                                                                    
The  group  worked  through  the   summer  with  many  state                                                                    
organizations  to  reduce  costs within  the  Department  of                                                                    
Corrections,  Department  of  Public Safety,  Department  of                                                                    
Law,  Department  of Health  and  Social  Services, and  the                                                                    
Alaska Court System. Participants  from the agencies and the                                                                    
legislature  all   worked  together   to  propose   a  plan.                                                                    
Currently the  Goose Creek Correctional Facility  was at 101                                                                    
percent  occupancy.  Prison costs  were  $158  per day  [per                                                                    
prisoner] to  keep people incarcerated. The  costs were paid                                                                    
out of  the state's  operating budget.  The state  needed to                                                                    
reduce  the  cost to  state  agencies  through a  recidivism                                                                    
reduction plan.  The committee supported a  partnership with                                                                    
the Pew  Foundation to  design a  plan with  minimal dollars                                                                    
which he believed  would save the state tens  of millions of                                                                    
Co-Chair Neuman  relayed that much  of the  budget consisted                                                                    
of tax credits, the credits  were small produces tax credits                                                                    
totaling  about  $700  million. The  state  had  anticipated                                                                    
paying out  about $350 million  to $400 million  in credits,                                                                    
$250  million  more than  was  expected.  The credits  would                                                                    
expire  January   1,  2017.  In   the  following   year  the                                                                    
legislature  would only  be dealing  with 6  months-worth of                                                                    
credits. The  state also allowed  producers to  redeem their                                                                    
credits in  within 1  year rather than  2 years.  It allowed                                                                    
the  small producers  to have  additional fluid  capital for                                                                    
reinvesting  in the  State of  Alaska to  produce more  oil.                                                                    
Reviewing past oil  prices showed that it had  dropped to $9                                                                    
per barrel  but production was  also at 1.5  million barrels                                                                    
per  day.  Currently  production  was  down  to  .5  million                                                                    
barrels  per day.  The difference  between $60  oil and  $90                                                                    
dollar oil was minimal in  terms of moving the deficit line.                                                                    
He  suggested that  the state  had to  put more  oil in  the                                                                    
Trans-Alaska Pipeline.  He affirmed  that that SB  21 helped                                                                    
to  facilitate  more  oil   by  providing  additional  small                                                                    
producer  credits.   He  believed  that  the   credits  were                                                                    
successful, although  he expected the  amount to be  less in                                                                    
the following year.                                                                                                             
Co-Chair  Neuman  reported  that  Institute  of  Social  and                                                                    
Economic  Research (ISER)  along  with  Common Wealth  North                                                                    
looked at  state spending and asserted  that the legislature                                                                    
could reduce current  spending over a 3 year  period to $5.5                                                                    
billion in  FY 16, $5  billion the following year,  and $4.5                                                                    
billion in the  third year. He believed  the legislature had                                                                    
to review the  potential cause and effect  of any reductions                                                                    
being  considered.  The   committee  brought  the  operating                                                                    
budget down  to $5.4  billion, $100  million less  than what                                                                    
was  recommended  by ISER.  He  talked  about the  potential                                                                    
reduction of $300 million to  $400 million in tax credits in                                                                    
the  following year.  He surmised  that the  state could  be                                                                    
close  to  reaching  $500  million   in  reductions  in  the                                                                    
following year.  He continued  that with  further reductions                                                                    
the legislature might  be able to reduce the  budget to $4.5                                                                    
billion within  2 years. He relayed  that he spent a  lot of                                                                    
time looking  at the numbers. He  was proud of the  work the                                                                    
committee  had done  and anticipated  more work.  The budget                                                                    
would be  moved over  to the Senate  where he  expected more                                                                    
discussions  and  further  reductions  to  occur.  He  asked                                                                    
members  for  their  support  in  moving  the  bill  out  of                                                                    
Representative Gara WITHDREW OBJECTION.                                                                                         
Co-Chair  Thompson  MOVED to  REPORT  CSHB  72(FIN), out  of                                                                    
committee with individual recommendations.                                                                                      
There being NO further  OBJECTION, CSHB 72(FIN) was REPORTED                                                                    
out of committee with a "do pass" recommendation.                                                                               
9:58:10 AM                                                                                                                    
Co-Chair  Thompson  MOVED to  REPORT  CSHB  73(FIN), out  of                                                                    
committee with individual recommendations.                                                                                      
Representative Gara OBJECTED for discussion.                                                                                    
Representative  Gara  wanted  to  make sure  there  were  no                                                                    
changes  since  the governor's  filing.  He  wanted to  know                                                                    
whether the House Finance Committee had made any changes.                                                                       
9:59:27 AM                                                                                                                    
Mr. Ecklund reported that the  changes made in the operating                                                                    
budget  to the  different  mental health  programs would  be                                                                    
rolled into  the mental  health budget.  He did  not believe                                                                    
there was anything Representative Gara  was not aware of. It                                                                    
was mentioned earlier  in testimony in the  previous week by                                                                    
Ms. Brown  that there was  one capital project  removed from                                                                    
the bill.  It had been  standard practice for the  Senate to                                                                    
reinstate  the capital  project  and to  remove others  that                                                                    
would be conferencable items.                                                                                                   
Representative Gara WITHDREW his OBJECTION.                                                                                     
There being NO further  OBJECTION, CSHB 73(FIN) was REPORTED                                                                    
out of committee with a "do pass" recommendation.                                                                               
Co-Chair Neuman thanked the committee for all of its work.                                                                      

Document Name Date/Time Subjects
HB 72 HB 73 Agency Summaries Final.pdf HFIN 3/11/2015 9:00:00 AM
HB 72
HB 73