The House Finance Committee heard testimony Tuesday on chronic delays in state payments to nonprofits, municipalities, and tribal organizations. Lawmakers pressed officials on why some entities wait months for reimbursement while private contractors receive prompt payment.

The discussion centered on legislation requiring the state to pay nonprofits, tribes, and local governments within 30 days, matching standards already in place for private contractors. The bill would impose interest penalties when the state misses deadlines.

Lawmakers questioned why payment timelines vary so widely across state departments. One legislator asked whether delays in community assistance payments to local governments are typical, noting that such transfers often represent a substantial portion of small communities' budgets.

Advocates said many nonprofits fear speaking publicly about payment delays. One representative from a nonprofit advocacy organization said her group stepped forward because member organizations were reluctant to testify. She clarified she had no evidence of actual threats or harassment.

The Department of Health submitted six fiscal notes for the bill, one for each division. An assistant commissioner acknowledged the department does not want to be in its current position. She outlined several contributing factors, including staff turnover, training gaps, and the complexity of the state accounting system.

The official said the department is implementing improvements. Those include monthly scorecards for divisions tracking payment timeliness and a new process allowing divisions to enter transactions directly into the accounting system rather than routing them through a separate finance portal. She said the department needs time to train staff and reduce turnover.

One legislator noted the department moved billions of dollars through its system during the pandemic, burning out long-term staff and creating particularly high turnover among payment processing personnel.

Lawmakers asked what resources the department needs beyond passing legislation. The assistant commissioner said enhanced training on the accounting system and time to implement new processes would help. She did not request specific budget additions.

Several legislators questioned whether imposing payment deadlines and penalties would solve underlying operational problems. One asked whether the state should instead address staffing, technology, and process issues directly.

Another legislator pointed out that existing statute already provides detailed protections for private contractors. Those include requirements that the state notify contractors within eight working days if payment will be withheld and explain what remedial actions the contractor can take. That same framework does not exist for nonprofits, municipalities, or tribal organizations.

Advocates said nonprofits regularly report on money they never received in order to qualify for the next payment installment. They said reporting requirements are clearly outlined but payment processes do not align with reporting timelines.

The Alaska Municipal League executive director testified that whether through contracts or grants, the state enters obligations to provide services. Once services are provided and entities submit invoices or reimbursement requests, the state determines whether costs are eligible. That is when the 30-day clock should start, he said.

Lawmakers asked about differences between grants and contracts. The bill sponsor said grants have parameters and standards similar to contracts. The legislation simply sets a timeline for payment regardless of the funding mechanism.

One legislator asked whether federal programs that prohibit using federal money for interest penalties would require the state to assume financial liability. The sponsor said that could be the case.

The committee did not take action on the bill. The sponsor said fiscal notes would be addressed at the next hearing.