Legislature(2015 - 2016)SENATE FINANCE 532

02/04/2015 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 26 Presentation: Overview FY17 Operating Budget TELECONFERENCED
Departments: Environmental Conservation and
Heard & Held
Heard & Held
SENATE BILL NO. 27                                                                                                            
     "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."                                                                                          
9:09:31 AM                                                                                                                    
PAT  PITNEY,  DIRECTOR,  OFFICE OF  MANAGEMENT  AND  BUDGET,                                                                    
OFFICE OF THE GOVERNOR, introduced SB 27.                                                                                       
Co-Chair Kelly noted that the full committee was present.                                                                       
Ms. Pitney explained that the  bill before the committee was                                                                    
a  work-in-progress budget  of  the previous  administration                                                                    
that was being used as a  placeholder to be submitted on the                                                                    
statutory   deadline.   She   said  that   amendments   were                                                                    
forthcoming  and  would  be received  by  the  committee  on                                                                    
February  5,  2015,  and  would  show  a  reduction  in  the                                                                    
Operating Budget of  over $100 million.   She referenced the                                                                    
previous  overview and  relayed that  agencies, non-formula,                                                                    
would have a 6.5 percent  decrease in their budgets, roughly                                                                    
a reduction  of $140 million  from 2014. She  listed several                                                                    
specific reductions  to the  Department of  Corrections, the                                                                    
Department of  Administration, the Department of  Health and                                                                    
Social   Services,    and   Information    Technology.   She                                                                    
anticipated that  once the committee had  the opportunity to                                                                    
peruse the detailed budget books,  a deeper discussion could                                                                    
9:12:15 AM                                                                                                                    
Vice-Chair   Micciche   understood   that  the   Office   of                                                                    
Management and  Budget (OMB)  had not had  time to  create a                                                                    
revised budget to present to the committee.                                                                                     
Ms. Pitney replied in the affirmative.                                                                                          
Vice-Chair  Micciche  understood   that  the  administration                                                                    
would see  the revised budget before  the committee received                                                                    
a copy.                                                                                                                         
Ms. Pitney clarified that the  administration had viewed the                                                                    
revised  budget and  was  in the  process  of compiling  the                                                                    
details  for  each  department  in  order  to  transmit  one                                                                    
package to the committee.                                                                                                       
9:13:12 AM                                                                                                                    
Senator Hoffman  asked about the aforementioned  6.5 percent                                                                    
reduction  from  the  previous administration's  budget.  He                                                                    
said that  the governor  had mentioned in  his State  of the                                                                    
Budget address  a reduction of  5-9 percent. He  queried the                                                                    
percent  reduction  in  the   revised  budget.  He  wondered                                                                    
whether even  9 percent  would be  an adequate  reduction in                                                                    
state spending.                                                                                                                 
Ms. Pitney  responded that there  was a 5  percent reduction                                                                    
in non-formula agencies between  the work in progress budget                                                                    
before  the committee  and  the  governor's amended  budget.                                                                    
She  relayed   that  the  6.5  percent   reduction  was  the                                                                    
reduction  from agency  non-formula  operating budgets  from                                                                    
the  2015  management plan  to  the  amended budget.  The  9                                                                    
percent reduction was a combination  of the Operating Budget                                                                    
and  the Capital  Budget management  plan 2015,  compared to                                                                    
the governor's amended plan.                                                                                                    
Senator Hoffman asked what the  original anticipated draw on                                                                    
the  Constitutional Budget  Reserve  (CBR)  for the  current                                                                    
fiscal year  and subsequent years considering  the low price                                                                    
of oil.                                                                                                                         
Ms. Pitney replied that the  estimated draw from the CBR was                                                                    
$3.5 billion  for 2015. She added  that if the price  of oil                                                                    
increased the draw was expected at $3.2 billion.                                                                                
9:17:18 AM                                                                                                                    
Ms. Pitney relayed  that if oil remained at  $50 per barrel,                                                                    
the savings would be depleted by  the middle of FY18; if the                                                                    
e price of oil went with  the forecast from DOR, the savings                                                                    
would last until 2022.                                                                                                          
Senator  Hoffman  understood  that  in  FY15  and  FY16  the                                                                    
potential burn could be as high as high as $7 billion.                                                                          
Ms. Pitney replied in the affirmative.                                                                                          
9:18:01 AM                                                                                                                    
Vice-Chair  Micciche clarified  that  the  work in  progress                                                                    
budget  had  a  1.5  percent  reduction  from  the  previous                                                                    
administrations  FY15 budget  and the  budget that  would be                                                                    
rolled out on February 2,  2015, would reflect an additional                                                                    
5 percent  reduction, which would  result in a total  of 6.5                                                                    
percent reduction.  He furthered  that when the  Capital and                                                                    
Operating Budget  reductions were  added together  the total                                                                    
was a 9 percent reduction under FY15.                                                                                           
9:18:46 AM                                                                                                                    
Ms.  Pitney made  the point  that there  were three  primary                                                                    
reductions  in  the  Operating   Budget  that  were  due  to                                                                    
Medicaid expansion. She  stated that one was  in the Chronic                                                                    
and Acute Medical Assistance Program  (CAMA), the second was                                                                    
from  a small  reduction in  some Behavioral  Health Grants,                                                                    
and the  third piece would  be the amount of  the Department                                                                    
of  Corrections   healthcare  that   would  be   covered  by                                                                    
Medicaid.  She   shared  that  the  savings   from  Medicaid                                                                    
expansion would  total approximately $10 million.  She added                                                                    
that the federal  funding for Medicaid was  in the Operating                                                                    
Budget totaling an estimated $450 million.                                                                                      
9:20:13 AM                                                                                                                    
Vice-Chair  Micciche   queried  the  two  models   that  run                                                                    
internally  by OMB  and which  percentage  numbers had  been                                                                    
used for all departments.                                                                                                       
Ms. Pitney replied  that OMB had looked at  five percent and                                                                    
eight percent reductions.                                                                                                       
Vice-Chair Micciche  understood that  the exercise  had been                                                                    
internal   but  that   the   committee   could  visit   with                                                                    
commissioners in  order to discuss  deeper cuts  to budgets.                                                                    
He asked if  OMB had identified specific  areas where deeper                                                                    
cuts could be made.                                                                                                             
9:21:41 AM                                                                                                                    
Co-Chair Kelly interjected  that Ms. Pitney did  not have to                                                                    
answer the  question as it  could put  her at odds  with the                                                                    
9:21:54 AM                                                                                                                    
Vice-Chair  Micciche  rephrased  his question.  He  surmised                                                                    
that  additional cuts  would  hurt  Alaska's workforce,  but                                                                    
believed that  deeper cuts  needed to  be made.  He believed                                                                    
that  commissioners would  have ideas  about how  additional                                                                    
cuts could  be made  that would hurt  residents a  little as                                                                    
possible by being economically effective.                                                                                       
Ms.  Pitney  responded  that  OMB  challenged  each  of  the                                                                    
commissioners  to look  at their  budget and  determine what                                                                    
could be reduced  to operate at a 25%  reduction. She agreed                                                                    
that the  commissioners would be  best at talking  about the                                                                    
impacts  to  their departments.  She  said  that the  public                                                                    
discussion, based on the current  reductions, would be loud.                                                                    
She shared that some reductions  looked large, but needed to                                                                    
be  put into  context with  what still  remained in  program                                                                    
budgets.  She  warned that  as  the  budget rolled  out  and                                                                    
people  saw  the cuts  that  would  impact them  personally,                                                                    
nothing would be viewed as  "low hanging fruit." She relayed                                                                    
that it  was the  body's prerogative  to determine  what the                                                                    
cuts would be.                                                                                                                  
9:25:25 AM                                                                                                                    
Vice-Chair Micciche stressed that his  goal was to affect as                                                                    
few Alaskans as possible.                                                                                                       
9:25:45 AM                                                                                                                    
Co-Chair  Kelly  asked  what  the  state's  economic  future                                                                    
looked like if  all departments took a  25 percent reduction                                                                    
over the next several years.  He estimated that a 25 percent                                                                    
cut  in  all  departments  could  equal  approximately  $500                                                                    
million. He thought  that cuts would need to  be deeper than                                                                    
day-to-day  agency  operations  in  order  for  them  to  be                                                                    
effective. He asked  whether OMB had put together  a list of                                                                    
larger  drivers that  could  be cut,  such  as Medicaid  and                                                                    
Ms. Pitney  reminded the  committee that  the administration                                                                    
was working  diligently on the  issue of  Medicaid expansion                                                                    
and reform, with  cost neutrality and cost  reduction as the                                                                    
focus. She furthered  that OMB anticipated in  the summer of                                                                    
2015, recommendations from  the education study commissioned                                                                    
by the  legislature on  the K-12  formula. She  reminded the                                                                    
committee that  the state  faced a  $3.5 billion  deficit if                                                                    
oil  remained  at $50  per  barrel.  She  said that  the  25                                                                    
percent  cut across  all departments  would  equal the  $500                                                                    
million  needed to  fill the  gap  in the  FY16 budget.  She                                                                    
warned  that  $500  million  was   a  huge  stretch;  having                                                                    
agencies reduce costs by 25  percent, and serve the state as                                                                    
the state expected to be served, was a huge undertaking.                                                                        
Co-Chair Kelly  asked her  to clarify  how the  $500 million                                                                    
would fill the gap.                                                                                                             
Ms.  Pitney  clarified  that  the  DOR  fall  2014  forecast                                                                    
predicted oil  prices at  $66 per barrel  in 2016,  and then                                                                    
back up to  $100 per barrel oil. She explained  that if that                                                                    
revenue projection  held true, and agency  operating budgets                                                                    
were  reduced   25  percent,  the  state   would  meet  that                                                                    
projection. She  reminded the committee that  the 25 percent                                                                    
cut  could end  up being  lower  than what  was required  to                                                                    
serve the state.                                                                                                                
9:29:33 AM                                                                                                                    
Senator  Bishop hoped  that  committee  members could  offer                                                                    
their  experience   in  agency   operations  to   the  newer                                                                    
commissioners in the governor's administration.                                                                                 
9:30:28 AM                                                                                                                    
Co-Chair  MacKinnon   agreed  that   there  were   many  new                                                                    
Commissioner-Designees  that  would  be  coming  before  the                                                                    
legislature for  confirmation. She  asked for the  number of                                                                    
new Administrative  Service Directors there were  to support                                                                    
the new commissioners.                                                                                                          
Ms.  Pitney  replied  that  there   were  possibly  two  new                                                                    
directors.    She  agreed  to follow  up  and  confirm  that                                                                    
Co-Chair MacKinnon asked about  the anticipated $450 million                                                                    
from Medicaid expansion written into the Operating Budget.                                                                      
Ms.  Pitney  replied  that  the  state  would  receive  $450                                                                    
million in federal receipts for Medicaid expansion.                                                                             
Co-Chair  MacKinnon wondered  whether the  governor believed                                                                    
that  legislative   approval  was  necessary   for  Medicaid                                                                    
Ms. Pitney responded that  legislative approval was required                                                                    
on the  federal receipt authority.  She said that  there was                                                                    
no other statutory language needed in order to expand.                                                                          
Co-Chair  MacKinnon  predicted  that the  debate  concerning                                                                    
Medicaid expansion, whether to  simply advance expansion, or                                                                    
put forth a  bill that would be crafted  by the legislature,                                                                    
would revolve around the finance committee table.                                                                               
Ms.  Pitney  contended  that  the  administration's  process                                                                    
would be very transparent,  and would present legislation in                                                                    
any  committee,  but that  the  need  for the  expansion  to                                                                    
travel through  the budget process.  She furthered  that any                                                                    
presentations on  the impact to  the state and  awareness of                                                                    
programs  would  be  presented  in  as  many  forms  as  the                                                                    
legislature wished.                                                                                                             
9:33:17 AM                                                                                                                    
Co-Chair  Kelly interjected  that Medicaid  expansion was  a                                                                    
budget  move  that the  administration  might  not have  the                                                                    
opportunity to discuss in  multiple committees because there                                                                    
was no legislation to accompany the move to expand.                                                                             
Co-Chair MacKinnon  was unsure whether the  people of Alaska                                                                    
would be  privy to the  full conversation on  expansion. She                                                                    
expressed  displeasure  with  the use  executive  orders  to                                                                    
implement  policy   without  going  through   a  legislative                                                                    
process. She  said that she  would be requesting  an opinion                                                                    
from  the legislative  legal division  whether  there was  a                                                                    
statutory  responsibility that  the legislature  approve the                                                                    
expansion. She understood that  expansion would benefit many                                                                    
Alaskans, but hoped  that the legislature would  not be left                                                                    
out of  the process.  She feared that  there could  be long-                                                                    
term financial  repercussions to  the state and  that future                                                                    
legislatures  would have  to provide  the expanded  services                                                                    
whether or not the state had the funds to do so.                                                                                
9:35:18 AM                                                                                                                    
Co-Chair Kelly contended that the  expansion would not serve                                                                    
40,000 Alaskans. He said that  the number was probably never                                                                    
accurate and that the true  numbers were closer to 11,000 or                                                                    
6,500. He  hoped that members  of the press would  check the                                                                    
number for accuracy.                                                                                                            
9:36:04 AM                                                                                                                    
Co-Chair  MacKinnon  asked  whether the  governor  would  be                                                                    
receptive to a  budget with deeper cuts  than the governor's                                                                    
proposed budget, or should the legislature fear a veto.                                                                         
Ms.  Pitney responded  that the  governor  could reduce  the                                                                    
amount put  forward by  the legislature,  or veto  the whole                                                                    
bill.  She expressed the  wish for collaboration between the                                                                    
administration and the legislature  to strike a balance. She                                                                    
said that the governor's goal  was to reduce the budget over                                                                    
the course of time and stabilize the economy.                                                                                   
9:38:06 AM                                                                                                                    
Co-Chair  Kelly thought  that OMB  would find  the committee                                                                    
supportive in the process.                                                                                                      
9:39:30 AM                                                                                                                    
Senator Hoffman  asked about reductions to  community jails.                                                                    
He felt  that those reductions  would be small  when looking                                                                    
at the  big picture.  He spoke of  instances in  rural areas                                                                    
when Village Safety Patrol Officers  (VPSO) and troopers had                                                                    
been killed. He expressed  concern for the options available                                                                    
for detaining  violent offenders in rural  villages when the                                                                    
entire  community  was  at  risk.  He  warned  that  cutting                                                                    
anywhere  in  the  Department of  Corrections  (DOC)  budget                                                                    
could affect many small communities in rural Alaska.                                                                            
9:41:01 AM                                                                                                                    
Co-Chair Kelly  added that budgeting to  meet constitutional                                                                    
obligations was  unrealistic, except when it  came to public                                                                    
9:42:05 AM                                                                                                                    
Co-Chair  MacKinnon spoke  to  the  most recent  legislative                                                                    
audit  of  DOC. She  relayed  that  one of  the  outstanding                                                                    
issues of  the audit was  a statutory change in  the ability                                                                    
to  allow  telecommunication  opportunities  for  the  court                                                                    
system  as  a  way  to   save  money.  She  hoped  that  the                                                                    
administration was looking for  savings by possibly changing                                                                    
how services were delivered in the state statutorily.                                                                           
SB  27  was   HEARD  and  HELD  in   committee  for  further                                                                    

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