Legislature(2015 - 2016)HOUSE FINANCE 519
04/30/2015 01:00 PM House FINANCE
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HOUSE BILL NO. 1001 "An Act making appropriations for the operating and loan program expenses of state government and for certain programs, capitalizing funds, making reappropriations, making capital appropriations, 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." 1:06:39 PM Co-Chair Neuman explained that the meeting would entail a high level overview of the new Committee Substitute (CS) for HB 1001. He instructed committee members to submit written questions that would be addressed during the next meeting. PETE ECKLUND, STAFF, REPRESENTATIVE MARK NEUMAN, reviewed the changes in the new CS. He directed attention to the "2015 Legislature Operating Budget Agency Summary FY16 Conference Structure" (copy on file) that contained the numbers and language sections summary of unrestricted general funds (UGF) in HB 1001. He cited the totals listed in column one: Statewide total of $54.954.5 million and Fund Transfers of $39 million, and noted that the CS contained approximately $94 million of additional unrestricted general funds. He turned to the numbers and language sections all funds summary titled, "2015 Legislature Operating Budget Agency Summary FY16 Conference Structure" (copy on file) and pointed to column one that identified $217.660 million of new spending above the adopted Conference Committee Substitute (CCS) [CCS HB 72] operating budget totals. Co-Chair Neuman interjected that the four columns specified the additional funding by department and type of funding. Representative Wilson asked whether the summary was the difference between the CCS and the new CS and wondered whether additional money above the $217.660 million and $94 million was added. Mr. Ecklund explained that contained in both summaries the Department of Corrections (DOC) listed a savings of $4.108.2 million, which reflected the Medicaid expansion portion of the CS. The net increase in the bill was $217.660 million of all funds. Representative Wilson pointed out that the CS contained "new numbers that do not show up because of the Medicaid expansion decrease." Co-Chair Neuman offered that the Medicaid expansion discussion would occur in depth next week. Representative Wilson asked whether the committee would re-examine the entire operating budget or only the increases in the CS version. Co-Chair Neuman explained that presently, the committee was reviewing the CS which contained the differences between the conference committee numbers and the governor's new bill. 1:12:43 PM Mr. Ecklund referred to section 5 of the governor's version of HB 1001 which reflected the Medicaid expansion portion. He observed that the section contained negative and positive spending appropriations; the negative numbers reflected savings. Representative Gara referred to the UGF summary "Non- Additive Items, Fund Transfers" listing and asked why the fund transfers number ($39 million) was added to the UGF total of $54.954.5 million. Mr. Ecklund responded that the amount reflected $39 million of new general fund spending which necessitated an appropriation into the public education fund. Representative Gara asked for clarification. Mr. Ecklund responded that on page 15, Section 7 of the CS, a fund transfer of $118 million was appropriated from the instate natural gas pipeline fund to the public education fund. He detailed that the CCS transferred $157 million from the pipeline fund and the difference of $39 million reflected in the CS was appropriated from general fund dollars. Representative Gattis commented about the CS. She wondered why the CS only contained the changes between the CCS and the governor's version of HB 1001. Co-Chair Neuman reiterated that the bill reflected the differences between the CCS and the governor's version of HB 1001.He emphasized that the CS only contained the differences. Representative Gara announced that the governor did not work with the Minority when drafting HB 1001. Vice-Chair Saddler assumed that CCS HB 72 [APPROP: OPERATING BUDGET/LOANS/FUNDS] would become law and whatever proposed changes that were adopted would be rolled into HB 72. Co-Chair Neuman answered in the affirmative. 1:18:12 PM Representative Gattis expressed her struggle to understand the strategy with proposing the Committee Substitute. She asked whether whatever changes were adopted would be rolled into HB 72. Co-Chair Neuman restated that the CS only contained the governor's requested changes to streamline the process and make it "easier to understand" and would be rolled into CCS HB 72. PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, expressed her appreciation for the work of the Legislative Finance Division, Mr. Ecklund, and Joan Brown from Co-Chair Neuman's staff on the new CS version of HB 1001. She explained that the new Committee Substitute outlined the governor's priorities and was a "much simpler approach" to the process. The intent of HB 1001 was to keep budget negotiations ongoing. She stated that the budget included funding for education, Medicaid expansion, and adjusted for items that were "cut too far and would have a substantial impact" on government operations. She emphasized that the legislation was a vehicle to keep discussions going and work towards a "funded budget." She announced that the administration was "flexible" in its goal to achieve a funded budget and willing to work together to reach a compromise. Representative Gattis voiced that she did not hear Ms. Pitney say that "this was the only thing on the table". She inquired whether everything in the budget was open for discussion. Co-Chair Neuman answered that the items in the CS were contained in the governor's version but in a much simpler form. 1:25:14 PM Ms. Pitney spoke to the Cost Of Living Adjustments (COLA) included in the CS for union employees: State-wide Unallocated Appropriation Total: $35,367,600. Ms. Pitney explained that one of the changes in the CS version was to leave the funding and language intact for the bargaining unit's union contracts and maintain the ability to engage in "good faith" negotiations to gain concessions rather than break contracts with the understanding that non-union employees would not receive pay raises. Co-Chair Neuman noted that the appropriation was found on line 32, pages 3 through 4 of the legislation. SHELDON FISHER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION, explained that he intended to "aggressively" negotiate the contracts as they expire. Presently, the Department of Administration (DOA) was in the process of negotiating with bargaining units representing approximately 17,000 employees and with other units representing 10,500 employees set to expire within the next 12 months. He related that the administration believed in honoring the commitments that were already made and funded the COLAS (Cost Of Living Adjustments). Co-Chair Neuman talked about the passionate discussions on the floor about the state facing huge deficits and the legislators support for state employees. However, in light of the deficits the legislature adopted provisions that denied pay increases for both union and non-union employees. He recounted that the 2.5 percent pay increases were negotiated three years ago. He wondered why it was so important for the administration to increase the budget by funding pay raises when the state was facing severe deficits. Commissioner Fisher thought that as contracts expired the state should negotiate a new salary schedule. He believed that the state should honor the contracts and commitments that were previously negotiated in good faith in order to maintain a sense of trust with the bargaining units. Vice-Chair Saddler asked whether there could be legal repercussions from denying the non-union employees their COLA while giving it to the union employees. Commissioner Fisher replied that each employee group has its own "structure" and he believed that there was no legal liability. Vice-Chair Saddler wondered about the moral effects of denying the COLA to the exempt employees. Commissioner Fisher related that over the long-term the state had been fair and equitable to both the union and exempt units and intended to continue to do so. 1:32:17 PM Vice-Chair Saddler surmised that increases would be given to union employees and that in the future non-union employees would receive a COLA. Commissioner Fisher responded that historically, there were years when the exempt employees were given the COLA and union employees were not and vice versa. He felt that differences existed between negotiated outcomes over the two groups in any given year but when examined over the long-term benefits were consistently fair. Vice-Chair Saddler asked for clarification on the plan going forward. He discerned that, in fairness, the department intended to give the exempt employees a raise. Commissioner Fisher was not prepared to answer the question. Vice-Chair Saddler restated his question about exempt employee morale. Commissioner Fisher believed that the non-union employees generally understood the state's predicament. He indicated that all employees will be "challenged" and feel stress under the fiscal crisis. He did not feel that the present proposal would have "a dramatic impact on morale above and beyond the stressful environment of which we are operating under." Co-Chair Neuman reminded members that there would be more detailed information provided in future meetings. He requested that members ask question in line with "information gathering" for their written questions for more in-depth answers in a future meeting. Representative Wilson understood what Commissioner Fisher was saying. She conveyed that denying the raises was a way to spread out the cuts over the departments so more employees could keep their jobs. She believed that the COLA was negotiated in good faith without the knowledge of how low oil prices would decline. She wanted to understand the negotiation process better for future decision making to avoid a similar situation in the future. Commissioner Fisher indicated that in the future contracts would be negotiated with more flexibility with the future in mind, such as the ability to reopen negotiations with a change in oil prices. Representative Wilson wanted to better understand not only salary issues, but also the step increases, health insurance, and other benefits in regards to contract negotiations. 1:37:55 PM Representative Gattis felt that granting the COLA increase was sending employees "the wrong message" and hoped that people realized the situation the state was facing. Representative Gara was confused about which of the contracts were included in the legislation. He agreed with the concerns over morale issues related to denying a "statutory" pay increase. He asked whether the union contracts that were negotiated but not yet approved by the legislature was included in the bill. Commissioner Fisher replied that he needed to confirm whether the contracts referred to were included in the legislation. He did not believe so. Co-Chair Neuman requested a historical comparative of salary increases. Representative Gara asked whether the COLAS that were negotiated in the past were also removed by the legislature in the CCS. Commissioner Fisher responded in the affirmative. Representative Pruitt asked what would happen if the legislature chose not to fund the contracts. He wondered how the administration would handle that scenario. Commissioner Fisher stated that the administration would honor the contracts. In the absence of funding, each department would identify the amount of funding for the raises and find it in savings. He maintained that there would be additional layoffs under the unfunded scenario. Representative Pruitt asked for perspective on future expectations in the upcoming negotiations. Commissioner Fisher agreed with the request. 1:43:41 PM Vice-Chair Saddler asked whether the governor had committed to signing CCS HB 72 as adopted by the legislature into law and that HB 1001 would be an addendum to HB 72. Ms. Pitney responded that the current budget was "unfunded" and the governor had not committed to signing "anything." Representative Edgmon stated that the governor's intent of the bill was to create a pathway for achieving a three quarter vote in order to attain a Constitutional Budget Reserve (CBR) draw in the House of Representatives. Ms. Pitney responded in the affirmative. Ms. Pitney addressed page 2 of the bill starting with the line items for the Department of Education and Early Development (DEED): Teaching and Learning Support Total: $2,599,700 Alaska Learning Network $599,700 Pre-Kindergarten Grants $2,000,000 Ms. Pitney explained that DEED was the "hardest hit" in the CCS budget. The non-formula components were decreased by $18 million, which reflected a 31 percent decrease in general funds. The inclusion of the funds still represented a 26 percent decrease in non-formula funding. She commented that all of the items except for one in HB 1001 was include in the governor's original budget which included $250 million in budget reductions. She expounded that the Alaska Learning Network provided distance education mostly to rural communities in the form of courses that were required for the Alaska Performance Scholarship (APS) Scholarship. Representative Gattis commented that the funding in the CS was actually additional funding rather than just less of a reduction. Representative Wilson asked why the items were the governor's priority and why reductions were not found someplace else as an offset to the increases. Ms. Pitney maintained that the administration felt the unfunded items would cause "more damage than necessary." She reiterated that the legislation was a vehicle to bring the parties together in negotiations to achieve a funded budget. Co-Chair Neuman interjected that the items in the CS were items the governor believed were important enough to add back into the budget. Ms. Pitney concurred with the statement. 1:51:46 PM Representative Wilson emphasized that every item was "vetted in subcommittee and there were reasons" for their removal. She wondered why the governor deemed the subcommittees were wrong in their choices and what Alaskans would lose if the items were not funded. She opined that all she heard was that the items were the governor's priority and the funding should be added back into the budget. Ms. Pitney affirmed that the items were the priority of the governor and acknowledged that it was the right of the legislature to appropriate funds and welcomed the discussion regarding funding the governor's priorities. Vice-Chair Saddler reported that the governor indicated he would decrease the budget 16 percent, if elected, during his election campaign. He requested a reconciliation of the governor's current priorities that he believed represented a "dramatic shift" from his priorities during his campaign. He wondered how adding spending was a "tool" to achieve a funded budget under the circumstances. Co-Chair Neuman asked Vice-Chair Saddler if he had any specific questions regarding the two items that were listed under DEED. He recognized that the issue was "emotional." Ms. Pitney responded that the governor had talked about a 16 percent budget cut in recognition of declining oil prices but wanted to institute the cuts over time. She contended that the budget including the items in the CS reflected an 8 percent reduction in the operating budget compared to last year's budget. 1:55:59 PM Representative Gattis expressed her confusion over whether the items in the CS reflected what the governor wanted or was demanding or were included to begin budget negotiations. Ms. Pitney commented that the bill reflected the governor's priorities but was flexible to reach the goal of a funded budget and recognized that the bill was "in the legislature's court." Co-Chair Neuman reiterated that the items were the governor's priorities but the legislature would decide whether to fund them or not. Representative Gara asked about the Alaska Learning Network (AKLN). He asked whether AKLN was funded in order to meet the former governor's merit scholarship policy to provide access to the courses necessary to qualify for the scholarship. Co-Chair Neuman requested that DEED supply additional information regarding the program. Representative Gara offered to withdraw the question. Co-Chair Neuman reiterated that the committee would examine each item in greater depth in subsequent meetings. Representative Gattis stated that education was her Finance Subcommittee and hoped to have a further discussion to hear why he replaced the funding for the items her subcommittee cut. VALERIE DAVIDSON, COMMISSIONER, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, spoke to the line items for the Department of Health and Social Services (DHSS) in the CS: Children's Services Total: $1,330,500 Front Line Social Workers: $1,000,000 Family Preservation: $330,500 Departmental Support Services Total: $$1,175.000 Public Affairs $50,000 Commissioner's Office $125,000 Administrative Support Services $875,000 Information Technology Services $125,000 Agency-wide Appropriation Total: $2,218,500 Agency-wide Unallocated Appropriation: $2,218,500 Commissioner Davidson began with page 2, line 19, Front Line Social Workers and reported that the amount would fund seven social workers using Children Health Insurance Program (CHIP) funding. She moved to line 20, and noted that the restored funding for the Family Preservation Grant Program helped children remain in the home as opposed to out of home placements. She delineated that there were currently a record number of 2,500 children in the state in out of home placements. She turned to lines 21 through 27, Departmental Support Services and stated that the transaction reversed interagency transfers totaling $1.175 million. She continued with lines 28 through 30 and voiced that the Agency-wide Appropriation of $2.218.5 million reversed an unallocated reduction. 2:01:56 PM Vice-Chair Saddler referred to the CHIP funding for front line social workers and asked what CHIP funding was. Commissioner Davidson relayed that CHIP stood for Children's Health Insurance Program. She detailed that previously the federal government would grant bonuses to states for CHIP enrollment. Subsequently, the bonuses were stopped. The funds were used for a variety of purposes and some funding remained. The $1 million appropriation for front line social workers was taken from the remaining CHIP bonus grants in order to help reduce the record number of children in out of home placements. Co-Chair Neuman asked whether the CHIP money was a long- term funding source. Commissioner Davidson responded in the negative. Co-Chair Neuman asked how the department anticipated funding the positions after the CHIP money was expended. Commissioner Davidson responded that it was the department's hope that some tribal health organizations that partner with DHSS and were able to provide services through a program called 4-E would assist in reversing the out of home placement trend. Co-Chair Neuman requested more information on how the department planned on supplanting the federal funds for the social workers. Co-Chair Thompson referred to the original operating budget and shared that the appropriation was in the amount of $2 million in federal funding and added 20 front line social workers. The amount was reduced to $350 thousand for 3 front line social workers. He asked whether with the combined appropriations from the CS and the CCS there would be a total of 10 front line social workers. Commissioner Davidson responded in the affirmative. Co-Chair Thompson pointed out that the funding was not expected to continue in future years. 2:06:50 PM Vice-Chair Saddler was not clear whether the funding for the social workers in the CS was in addition to or included the 3 positions funded in conference committee. Ms. Pitney replied that the social worker positions funded in the CS was in addition to the positions funded in CCS HB72. Co-Chair Neuman asked whether the funding included all of the related equipment necessary. Commissioner Davidson explained that it would include some equipment. Co-Chair Neuman related that in prior years when he was Chair of the House Finance DHSS Subcommittee he proposed $1.5 million for 10 frontline social workers and $348 thousand for equipment. SANA EFIRD, ASSISTANT COMMISSIONER, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, affirmed the statement. Representative Wilson asked whether the funding was specifically for certified social workers or case workers. Commissioner Davidson answered that the funding included a variety of positions necessary besides licensed social workers. Representative Wilson requested information specifying the exact positions the social worker funding would include. Representative Gara understood the CS budget was a "kick- start effort" to drive budget negotiations. Representative Gara mentioned a workload study that was done a few years prior that concluded the Office of Children's Services (OCS) was understaffed by 45 employees and in the ensuing years the number of foster youth increased from approximately 1,800 to 2,500. He noted that 13 positions were added last year. He was certain that the 7 additional positions included in the CS was not sufficient to solve the problems facing OCS. Commissioner Davidson answered in the affirmative. Co-Chair Neuman asked for more information to support the need for the increase in social workers. Vice-Chair Saddler wanted to reconcile the difference between the social workers requested in CCS HB 72 and amount requested in the CS. 2:13:07 PM Ms. Pitney responded that the particular program was supported by the administration in HB 72 and the additional funding in the CS was "additive to the money in HB 72." Representative Pruitt surmised that HB 1001 was an addendum to CCS HB 72. He wondered what would happen if the governor did veto CCS HB 72. He asked whether HB 1001 would become the budget vehicle. He thought that was the source of the committee member's confusion. Ms. Pitney replied that CSS HB 72 was adopted but remained unfunded. She expounded that HB 1001 was an entirely new budget that encompassed the conference committee version and the changes reflected in the CS. Subsequent to the introduction of HB 1001, Co-Chair Neuman's staff and LFD suggested narrowing the conversation specifically to the changes from the CCS. The CS was created as an addendum that mirrored any changes that differed from the conference committee version. She voiced that under the assumption that the CBR vote would happen the changes adopted would "slide in." She reiterated that the legislation was a vehicle to begin a "compromise discussion" to arrive at a "funded budget." Co-Chair Neuman noted that the scenario was up for discussion. He recounted that CCS HB 72 was adopted by the legislature, the governor disagreed with some of items and introduced a new piece of legislation to add back his priorities. Representative Wilson remarked that the governor submitted a new operating budget in HB 1001 and asked whether that was the governor's intent. Ms. Pitney replied that the governor's intent was to get a compromise discussion started to achieve a funded budget. Representative Wilson asked whether the governor did or did not intend to put a new operating budget forward. Ms. Pitney responded that the bill was merely a mechanism to start a dialogue that would end in compromise and achieve a funded budget. She remarked that the administration accepted the approach of the CS versus a bill including the entire budget. Co-Chair Neuman repeated his statements regarding introduction of the CS that only included the governor's priorities. 2:18:50 PM Representative Wilson declared that she would not vote to increase the operating budget. She felt that the Finance subcommittees "well vetted" the departments budgets and without a bill that included the entire budget in order to "exchange" cuts for any of the priorities adopted, the CS ended the discussion for her. Vice-Chair Saddler announced that he agreed with Representative Wilson and that "it was not clear" how the budget process was going to proceed and with what bill. Ms. Pitney explained the change in the Department of Natural Resources (DNR): Administration and Support Services Total: $4,900,000 North Slope Gas Commercialization: $4,900,000. Ms. Pitney continued that an increment was requested to pursue gas commercialization contracts. The entire request was for $13 million and part of the amount was funded through Alaska Stand Alone Pipeline (ASAP). The amount in the CS brought the funding back to the full funding level requested in the governor's budget. She remarked that gas commercialization was a huge revenue opportunity and a "high priority for the governor." She continued with two items in the Department of Public Safety (DPS): Alaska State Troopers Total: $500,000 Alaska Wildlife Troopers Aircraft Section: $500,000 Council on Domestic Violence and Sexual Assault Total: $1,500,000 Council on Domestic Violence and Sexual Assault $1,500,000 Ms. Pitney noted that the first item restored partial funding for the helicopter service located in Fairbanks. The second item restored half of the funding for the Council on Domestic Violence and Sexual Assault (CDVSA). The administration cut the funding to $1,500,000 and moved it from the Governor's Office to DPS in the governor's budget request. The funding supported prevention programs. Co-Chair Thompson asked who received the $1.5 million in funding. Ms. Pitney answered that the money was appropriated directly to the CDVSA and was focused on prevention. Co-Chair Thompson asked whether the funding went through the Anchorage Police Department. Ms. Pitney responded that the funding he cited was a capital budget item awarded as a grant directly appropriated to the police department. Representative Gara asked whether the $1.5 million the administration was trying to add back was included in the governor's original proposal. Ms. Pitney responded in the affirmative. Vice-Chair Saddler asked whether the proposed $1.5 million would restore the council's budget to $3 million. Ms. Pitney replied that the CDVSA budget for prevention programs would amount to $1.5 million with adoption of the CS. She informed the committee that the council had operating funds in addition to prevention money that primarily funded grants for shelters. Co-Chair Neuman asked for more information about the council and its efficacy rate. MARK LUIKEN, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, discussed the Department of Transportation and Public Facilities' (DOT) item in the CS: Marine Highway System Total: $7,000.000 Marine Vessel Operations $7,000,000 Commissioner Luiken indicated that the increment on page 3, line 21 allowed the department to maintain its current commitment to passengers based on the schedule that was published on October, 2014. Co-Chair Thompson asked whether the funding supported existing reservations. Mark Luiken answered in the affirmative. Co-Chair Thompson asked whether the funding was a one-time increment. Mark Luiken answered in the affirmative. He reported that the department would prepare a much more conservative schedule for FY 2017 at the level of expected funding. Co-Chair Neuman asked what the total budget was for the Alaska Marine Highway System. Co-Chair Thompson responded that the total was $147 million. Co-Chair Neuman remarked that $7 million equated to .5 percent of the marine highway's budget. He wondered why the cut could not be absorbed by the department. Commissioner Luiken answered that the cut would be absorbed through service cuts beginning on July 1, 2015. Co-Chair Neuman requested more information regarding routes and scheduling. Commissioner Luiken stated that the options would be explored in the next budget cycle. 2:27:49 PM Ms. Pitney continued with the University of Alaska (UA) item: University of Alaska Total: $7,000,000 Budget Reductions/Additions System-wide: $7,000,000 Ms. Pitney offered that $7 million out of the $29.8 million (8.1 percent) reduction was restored in the CS. The funding in the CS would bring the reduction to $18.9 million which represented 5 percent of the university's budget. Vice-Chair Saddler asked whether the $7 million included money for the union university employee contract COLA. Ms. Pitney responded that the contract funding for the university was included in the CS under the contract section (beginning on page 3, line 30). Vice-Chair Saddler wondered what specific programs the money would fund. Ms. Pitney responded that the Board of Regents was currently making decisions to determine which programs would be cut and added that many cuts would be necessary to reach the $18.9 million threshold. Co-Chair Neuman asked for further information on the university's budget. He stated that the legislature worked hard to address the state's budget deficit and adopted a budget that fell short of the three quarters vote required to access the CBR. He further reiterated the CS process. He suggested that the CS would be a "tough sell" for the legislature. 2:32:35 PM HB 1001 was HEARD and HELD in committee for further consideration.