Senate Finance, 4/22/26, 1:30pm

Call the Senate Finance Committee to order.

132, We're in the State Capitol Senate Finance Room, April 22nd.

Joining us today, Senator Steadman, Senator Keehl, Senator Merrick, Senator Hoffman, Senator Cronkite, and myself, Senator Hoffman. Senator Olson is excused. We have 2 items on today's agenda— 3 items, I guess.

Introduction of CS-1 for the operating and mental health budgets. And get an update on the fiscal outlook and summary from Legislative Finance. I'd ask Senator Steadman for a motion to adopt the CS.

Thank you, Mr. Chairman. I move the Finance Committee adopt the Senate Committee Substitute for Committee Substitute for House Bill 26334GH2498/U before the committee as our working document. And I will object for an explanation, invite Pete Eklund to the table to introduce himself and tell us what the CS does. Mr. Eklund.

Thank you, Mr.— Thank you, Mr. Chairman. For the record, Pete Eklund, staff to Chair Hoffman and the Senate Finance Committee.

You all have various documents in your folders, Mr. Chairman. You do have a copy of the changes document I'm going to read from that you're welcome to peruse, and you also have some reports and the bills themselves. So, Mr. Chairman, I'm happy to report that the appropriations in this committee substitute, when combined with the spending agreements on the capital budget, You've met your target of budgeting at $73 a barrel of oil while also reserving $50 million for supplementals next year.

The CS in front of you appropriates the following amounts. I'm gonna round, Mr. Chairman. $6.21 Billion of unrestricted general funds, $1.04 billion of designated general funds, $2.06 billion of other funds, $4.52 billion of federal funds for a combined total of $13.83 billion, Mr. Chairman. The CS incorporates all the transactions adopted by the finance subcommittees. In addition, the following items were recommended by subcommittees and were incorporated into the bill.

The Department of Corrections Subcommittee recommended a $650,000 cost driver study for the, for, of the Department of Corrections. And the Legislative Budget and Audit Committee is going to be the ones in charge of going out for RFP for that, for that cost driver study. And Mr. Chairman, I'll just read a little bit of the intent that was forwarded to the committee. It is intent of the legislature that the Legislative Budget and Audit Committee issue a request for proposals, or RFP, to procure an independent third-party study to identify, evaluate, and analyze the primary cost drivers within the Department of Corrections. And Mr. Chairman, we've had various hearings over the previous few years and this year, all trying to get a handle on the Department of Corrections budget, Mr. Chairman.

So the hope is that this cost driver study will help the next legislature and the next administration get a handle on corrections budget. For the Department Administration, the subcommittee recommended that we do not decentralize payroll and shared services. So this committee substitute reverses the— reverses the decentralization of those functions in all affected agencies. For the Office of the Governor, the subcommittee recommended bifurcation of the governor's budget. This is in line with what the legislature did during the last gubernatorial election.

Approximately half of the Office of the Governor budget is contained in the numbers section, effective July 1st, 2026 through December 31st. In addition, a new appropriation was created, created for the lieutenant governor. The remainder of the Office of the Governor budget is effective January 1st, 2027. And is in the language section of the budget. For the Department of Health, the standard abortion prohibition language that has been passed in the budget the past few years was added into the numbers section.

Moving on to other supplementals, supplementals for the— which are FY26 appropriations. Thank you.

The number— the supplementals can be found in the numbers section of the bill, and those are sections 4 through 6 of the bill. For Mr. Chairman, there was amendments that were not incorporated— amendments from the executive branch, OMB, that weren't incorporated into the earlier passed supplemental bill. And so those are addressed here, Mr. Chairman. For the Department of Family and Community Services, Pioneers Homes payment assistance of $5.2 million of general funds. Department of Law, the Criminal Division, for increased case costs of $1.5 million of general funds.

The Department of Public Safety, Village Public Safety Operations, officer retention, travel, and safety equipment, et cetera, $1.25 million general funds. In the Department of Revenue, Taxation, the Treasury Tax Division, we added an assistant chief economist and 2 commercial analysts $236.9 million, uh, GF, general fund program receipts. Um, and Mr. Chairman, there is a handout A that the public and the committee can look at if they want to see all the, uh, the supplementals we added. Moving on to the language section supplementals, Mr. Chairman, for the Department of Law, in Section 7A of the bill, there's $534,000 general funds for judgments and settlements. And Section B, a $4 million general fund, uh, as a multi-year FY '26 through, uh, '28 appropriation to the Department of Law to defend the Veil v. State lawsuit concerning inmates of the correctional system.

That's interesting, got louder all of a sudden. Uh, For debt and other obligations, Section 8, 12, and Section 8 with subsections 12 and 13. These are governor's amendments that were added that were accepted that which reduce the interest expenses due to bond refi— refinancing, saving the state $1.251 million.

Supplemental fund transfers in Section 9. There's a bulk fuel revolving loan fund payment for.

Communities impacted by the West Coast storm, for Quig, of $351,900. Supplemental ratifications in Section 10 of the bill.

Moving on to supplemental special appropriations, Mr. Chairman, in Section 11(a)(1), there's a $150 per person energy relief payment added to the October Permanent Fund dividend at a cost of $96 million of general funds. In Section 11(a)(2), after the appropriation made in (a)(1), up to $100 million of general funds to the Department of Education and Early Development to be distributed as grants to school districts following the adjusted average daily membership formula. So they'll be granted out just like the money was run through the BSA, or the base student allocation, but outside the formula as a one-time grant or as a one-time item. And Mr. Chairman, Lexi Painter, the Director of Legislative Finance, is gonna make a presentation after I get through here this afternoon, and he's gonna explain some of the mechanics and the math of how these appropriations are going to occur as they relate to FY26. There's been some, there's been some changes, uh, since we passed the supplemental bill just a few weeks ago, and Mr. Painter is going to walk the committee through those.

Um, for fiscal year '27 appropriations, the Alaska court system, Section 13, Commission on Judicial Conduct, the CS removed an estimated-to-be-zero item but kept the not to exceed $75,000 for special counsel costs. Under the Alaska Industrial Development Export Authority in Section 15B of the bill, we match, we match language from the FY26 budget that appropriates ADA receipts back to ADA to be used at the discretion of the ADA Board of Directors. This language is necessary to avoid an unconstitutional dedication of funds All receipts received by the state must be appropriated to be spent. The permanent fund, Mr. Chairman, in Section 16C, uh, we've moved the full FY27 percent of market value transfer to the general fund. It's about $3.997 billion.

Section 16D pays a permanent fund dividend of $1,000. That's estimated to cost $674.1 million.

Section 16G is an informational item stating the, that the estimated amount of investment fees paid, estimated to be $734.8 million, come from the permanent fund. In Section 16H, it's also an informational item providing the estimated portion of the investment management costs attributable to the Power Cost Equalization Fund and the Mental Health Trust Fund. Moving on to Section 17, that's the Alaska Technical and Vocational Education Program. Section 17, there's some technical fixes in the leading language in Sections A, B, and C. Subsection 17D, is added to comply with statute appropriating any lapsing balance to the unemployment compensation fund.

Moving on to bonuses for certain employees of the executive branch in Section 18, dealing with letters of agreement, we added the standard language used the past few years out of— used the past few years laying out the process, process by which the Office of Management and Budget must follow when letters of agreement are implemented.

The Department of Administration in Section 19D, the CS capped at a not-to-exceed amount of $18.5 million, the amount of LAPS that DOA can use to target a reserve fund balance of 1.5 times of the amount of claims in the group health and life Benefits Fund. Further added intent that the Department of Administration only use this lapse appropriation for unanticipated costs, and it further states that DOA set the employer contribution rate to cover the full actuarial costs of the AlaskaCare employee health care plan. Subsection 19G added clarification that the appropriation for actuarial analysis of legislation is for bills in the finance committees of either house.

Moving on to the Department of Commerce, Community and Economic Development, Section 20D, Power Cost Equalization, appropriates an— the updated estimated full cost of the PCE program of $56.1 million. Subsection 20E is backstop of using prior PCE earnings to pay the FY27 program cost estimated to be $8 million. Former subsection 20(i) was deleted and moved the appropriation of $9,491 for the Arctic Winter Games to the numbers section of the bill. Section 20(j) added $10 million from the general fund to the community assistance fund to increase the FY27 community assistance payout to $30 million.

Subsection 20K is a new subsection. It's $20 million from the general fund to make an additional community assistance base payment in FY '27 with the intent of helping communities with high cost— with a high cost of fuel and shipping.

Moving on to the Department of Education and Early Development, Section 21D, as languaged to the Alaska State Council on the Arts license plates appropriation to clarify the Arts Council can use the money collected from license plates, $80,000, for the purposes described in statute. Subsection 20.1.E is a new subsection and it adds $29.1 million to school districts grants for the purposes of energy relief. Legislative Finance looked at the school district reported cost spent on energy over the last 3 years, and they took the highest reported cost of the last 3 years and multiplied that amount by 30%. And Mr. Chairman, there's a handout B if members are interested. It's also contained in the bill, but if you're interested in how those were calculated and what those grant amounts are to school districts.

Uh, moving on to the Department of Family and Community Services.

A statutory designated program receipt authority, or SDPR, appropriation for the Pioneer Homes Pharmacy Program was moved from the language to the number section. The deleted language section was estimated to be $3 million. The CS increases that to a flat $4 million to match the FY26 budget.

The Department of Health in Section 23B, a $272.2 million federal receipt multi-year for FY27 through '29 appropriation for the— was made for the Federal Rural Health Transformation Program. Department of Labor and Workforce Development, Section 24E, There's new leading language to clarify that the appropriations made in the language section for the Alaska Workforce Investment Board State Training and Employment Program and the Workforce Services Job Center State Training and Employment Program come after the appropriate appropriations made in Section 1, or the number section, of this act.

New subsection 24(f) appropriates any lapsing balance of the State Employment Assistance and Training Program in subsection (e) to the Unemployment Compensation Fund.

Moving on to the Department of Administration— our Department of Transportation and Public Facilities. Section 28 added $3.5 million of general funds to the Alaska Marine Highway System for maintenance of effort and salary adjustments. We deleted a reference to calendar year budgeting for the Alaska Marine Highway System as we have moved on to a multi-year budgeting approach. Subsection 28B added AMHS backstop funding of $49.5 million general funds in the event that no operating AMHS federal dollars are received in FY '27. This appropriation is expected to be zero.

Mr. Chairman, the notice of funding opportunity from the Federal Transit Administration went out a few weeks ago, and there is expected to be some federal money received at some point in FY '27 for the main highway system operations.

As I talked about earlier, Mr. Chairman, in the Office of Governor, we bifurcated that budget and made approximately half of the governor's budget effective January 1st.

University of Alaska in Section 30, there's a new section adding $15 million of federal receipts and $750,000 of university receipts For the creation.

And operation of a critical mineral accelerator program. Section 43B of this act makes this appropriation contingent on UAF receiving the federal grant.

Debt and other obligations. Section 32L, the technical and conforming, uh, to the— to a governor amendment of a $100,000 increase from the school fund and $100,000 decrease in general funds for the school bond debt reimbursement program. Federal and other program receipts. Section 33E added prohibition— added a prohibition that the Alaska Gas Line Development Corporation cannot use the revised legislative program or RPL process. This prohibition has been in the budget for the past few years.

Fund capitalization. Section 34C increases the appropriation to the Disaster Relief Fund from $24 million to $48 million. We don't know the FY27 nor the final state cost to respond to the Ahlong and other recent disasters, but we have information that it will certainly be in the tens of millions of dollars. This appropriation is meant to address some of those future expected but yet undefined costs. Subsection 34G.1 and 2, there are technical adjustments of $848.8 thousand of decrease in public school trust funds and an increase of a like amount from the general fund going to the public education fund for the state aid to school districts.

This, this corrects the public school trust fund draw to account for investment costs, which by statute should be included in the trust percent of market value calculation. Subsection 34S is a $50 million appropriation to the Community Assistance Fund, $4.8 million which comes from the PCE Fund and $45.2 million from the general fund. This will bring the Community Assistance Fund FY27 end of year balance back up to $90 million.

So the FY28 community assistance payout will be $30 million.

Subsection 34U is for fire suppression. It increases the general fund appropriation from $47.5 million to $60.6 million to bring the fund up to the 5-year average of the cost of fighting wildfires. It deleted— also deleted the governor's supplemental fire suppression request in this section, as that was funded in HB 289, the supplemental that was passed earlier. Fund transfers. Section 34A, if there's any lapse of the National Petroleum Reserve Alaska funds after grants are made to impacted communities, subsection 1 directs that 25% first goes to the permanent fund, This CS inserts a new subsection 2 directing that 75%— 70% goes to the Regional Education Attendance Area, or REAA, fund.

Subsections 3 and 4 direct 0.5% to go to the Public School Trust Fund and 4.5% to go to the Power Cost Equalization Endowment.

We're getting close, Mr. Chairman. Only another page in a little bit. Subsection 34K is a $5.3 million general fund appropriation to the Renewable Energy Fund. These funds have been appropriated to projects in the capital budget. Subsection 34L is repayment of the Washington, Wyoming, Alaska, Montana, and Idaho, or WAMI, loans.

Estimated to be $425,000, and those repayments are appropriated to the Alaska Higher Education Investment Fund.

Subsections 34O and P, FY27 appropriations to the Oil and Hazardous Release Prevention and Response Funds. The timing on this item shifted a few years, a few years ago to June 30th, making this a supplemental. The intent of this FY27 appropriation is to catch up So the— this appropriation is not a supplemental item going forward. Retirement system funding, Section 36A, increase of the on-behalf Public Employees Retirement System, or PERS, payment paid by the state for the PERS unfunded liability from $75.3 to $106.3 million of general funds to meet the actuarially determined contribution rate recommended by the Alaska Retirement management or ARMB board. Subsection 36B increases the on behalf payment for the Teachers Retirement System from $157.2 to $164.1 million of general funds, again to meet the actuarially determined contribution rate recommended by the ARMB board.

Salary and benefit adjustments, Section 37. Added new contracts for, for approval in subsections 10: the Alaska Correctional Officers Association representing the Correctional Officers Unit. Subsection 10(b)(4): the Alaska Higher Education Crafts, Trade, and Trades Employees Local 6070. Subsection 10(b)(5): the Fairbanks Firefighters Union IAFF Local 1324.

The section also references Section 28, the AMHS section, acknowledging salary adjustments for several AMHS-associated unions.

The CS deleted the Constitutional Budget Reserve FY26 and FY27 deficit-filling sections, as they are not needed. Section 40 is retained, reverse CBR provisions for FY26. And Mr. Chairman, when Mr. Painter comes up and does his presentation here shortly, you may ask him how the legislature can help with some of the items that Mr. Painter's gonna discuss regarding the reverse sweep.

The retroactivity sections are found in Section 42. Subsections B, C, and D add standard retroactive clauses for the supplementals in the bill. Contingencies. Section 43A is standard contingency added related to the approval of letters of agreement.

And lastly, subsection 43B is that contingency related to the appropriation in Section 30 for the creation operation of a critical mineral accelerator program is contingent on the National Science Foundation awarding a grant in calendar year 2026 to the University of Alaska Fairbanks.

Those are the changes, Mr. Chairman. Thank you, Mr. Eklund. Do members of the Senate Finance Committee have questions on the presentation? With that, I will remove my objection to adopting the CS. Is there further— any further objection to adopting the CS?

Seeing none, that CS is adopted. We will set this bill aside for further consideration. And it will be on basis for review. That brings us to item 2, which is HB 265, the mental health budget. Senator Steadman, motion to adopt the CS.

Thank you, Mr. Mr. Chairman, I move that the Finance Committee adopt the Senate Committee Substitute for Committee Substitute for House Bill 265, Finance 34 GH 2502/0 before the committee as our working document. And I will object for Mr. Eklund's explanation of the CS. Mr. Eklund. Thank you, Mr. Chairman. This explanation of changes is much shorter.

Um, after incorporating subcommittee action, the only changes to the mental health bill are in the salary and benefits adjustments section. Section 9 added new contracts for approval, just as the other bill did, the operating bill. Uh, in Section 10, there's the approval of the Alaska Correctional Officers Association representing the correctional officers unit. In Section 10B4, there's the Alaska Higher Education Crafts and Trades Employees Local 6070. And Section B.5, there's the Fairbanks Firefighters Union, IAFF Local 1324.

Are there questions of Mr. Eklund on the explanations on this CS? I will remove my objection. Is there further objection to adopting the CS as our working document? Seeing none, that is adopted. That brings us to the last item on today's agenda, which is an update— updated fiscal outlook and summary.

I invite Alexi Painter, the Director of Legislative Finance Division, to the table.

Mr. Alexi Painter, Esquire. Please introduce yourself and.

Give us your presentation. Thank you, Mr. Chairman. For the record, Alexi Painter, Legislative Finance Division, Master of Public Policy, not Esquire. So I'll start with an update on the current fiscal year. So oil prices have remained volatile since the spring forecast was released a bit over a month ago.

Prices— we've seen many days where prices change by $10 or more over the course of a single day.

The assumption in the spring forecast was that oil would average just over $91 between March and June. Between the start of March— excuse me— and last, I think last Thursday or Friday, that is, the actual price had been about $10 higher than that. However, the market has trended downwards a little more recently, although back up a little today. There's, with the continued volatility, revenue remains highly uncertain. One thing I'd note is that just looking at prices and assuming that's going to exactly translate into revenue may work in the long term, but in the short term, it's difficult because based on the corporate income tax, for example, is a payments-based revenue amount.

The companies may be— their payments within the year may not exactly match what their liability might be if the price is kept to a certain level. So even at a given oil revenue, oil price and oil production, we're not guaranteed to get the exact amount we might expect.

And some examples of kind of the margin of error we have is looking at the FY25. It's called the ACFR, Annual Comprehensive Financial Report of the State of Alaska. So last session, when the legislature adjourned, we expected there to be a deficit of about $100 I think about $190 million based on expected revenue and expected expenditures and appropriations, I should say. The source after vetoes of that deficit was the Higher Education Fund. The administration subsequently revised that $190 million down to $129.6 million based on preliminary revenue actuals in August.

And so then the comprehensive annual finance— the ACFR came out, Annual Comprehensive Financial Report came out and showed that instead of a deficit, we actually had a budget surplus in FY25. So that need for the transfer in the ACFR went away. And instead we have— we had approximately $160 million surplus. And that's due to a number of factors. And I'd really emphasize that the administration is still working on trying to understand exactly this translation between budget and accounting and why, why there was this difference.

But this has been a persistent issue over the past, you know, at least the past 6 or 7 years that I've been tracking it, where our projected deficit and the actual accounting deficit often are off by a couple hundred million dollars because of things other than just the direct UGF things that we see in the budget. So one example is post-audit revenue. You know, they— in August, the Department of Revenue provided a revenue figure. Revising that now, I think it's up about $30 million for FY25. Part of that is due to the audit process.

Part of it is that companies can go back and revise their taxes for after they've submitted them for those years, and that changes how much revenue is attributable to a year. That can even keep occurring after the audit process. Agencies can release encumbrances that they had been holding. And the timing of federal reimbursements is also variable. And that's something that in the budget side we often overlook federal reimbursements as an issue.

But in the accounting side, federal revenue is a source that all goes through the general fund. And so our deficit can be influenced by not getting federal reimbursements in a timely fashion or getting prior year federal reimbursements that had been received in a year. So we've had years where the final deficit in the ACFR shows up as larger than expected because we didn't get all the federal reimbursements. We get those later and that shows up as a positive to that year. And that— all of that is sort of hidden from view in those of us in the budget world who look at UGF, but it does influence our final deficit number.

And so in this case, we go from having a projected deficit to a projected apparent surplus in FY25, and that means that nothing needed to be drawn from the Higher Education Fund in FY25 after all. And in the ACFA, you can see that that was reversed. The cash still needs to be transferred. I'm not sure if that's occurred yet or is going to occur soon, but the cash still needs to move back. But from an accounting perspective, that didn't need to occur in FY25, and it opened up a liability from the general fund to the Higher Education Fund to actually transfer that cash back.

So there's a question now of, does this need to count in our FY26 budget? Is the $129.6 million that was appropriated in House Bill 289, does that actually count as an FY26 expenditure, or does it count as truing up something in FY25 that's a reversal and therefore doesn't count? And, you know, I've talked to legislative audit, I've talked to the Office of Management and Budget and the Division of Finance, and nobody is 100% certain exactly how that will be counted and what would be proper. The administration is still working on it. And so it may be that that $129.6 million is really zero.

And that would greatly influence our finances in FY26 by shifting that expense back to FY25. And so all this is to say, we're going to see a scenario in a minute that shows what it looks like if that is indeed zero. But also it just illustrates the risk of relying on narrow fiscal margins, not having a buffer, not having a source of backstop. You know, there are factors that can influence the surplus and deficit that are very difficult for us on the budget side to predict because they're having to do with things that are really not visible to us. Because it's timing of federal reimbursements and other items.

And I would encourage the legislature to generally adopt some caution, not try to spend literally every dollar that's projected to be available and to use, you know, a fund as a backstop. Traditionally, that's been the CBR. But again, to just understand that, that there is a margin of error here and When the higher ed fund was used last year, I think I wrote in our newsletter that year that we have been, you know, that final transfer could be zero, could be the entire balance of the higher education fund. We are not sure. Turns out we are on the zero side potentially.

But that takes a long time to get resolved and it does mean that as we are building the budget, there is a lot of uncertainty. Adding to that uncertainty is that the ACFFER has not met its statutory timeline in about a decade. By statute, it's supposed to come out at the same time as the governor's budget in mid-December. This year it was out in late February, which was a great improvement from the previous year when it came out in May. And that's due to very— a big effort by the Division of Finance to try to get that document in earlier.

But they're still over 2 months after the statutory deadline. And that makes things more difficult for the budgetary world because instead of having that information available when the governor is submitting the budget or when the legislature is starting the budget, these reconciliations that the Division of Finance and OMB are going through now about how to treat this higher education transfer are happening now in April rather than in December or January. And so the hope in the future is that that can get back towards the statutory timeline. So you say that takes 2 months. Is there anything that the legislature can do to reduce that time?

Mr. Chairman, in talking to the Division of Finance and the administration, I think there's many factors. One is the ensuring consistent staffing. And experience level in those departments. That's maybe outside of our control to some extent, but that, that's one of the factors. Another is the administering the sweep over the past 5 years to the CBR.

In the past, that was reversed every year, and then the past now 5 years or so, it has not been reversed. That's another thing that the Division of Finance needs to determine after the fact. It adds to their timeline between when agencies complete their fiscal work and when they can release the ACFR because that is something they have to do kind of after the fact. And it does add to their timeline. Other factors would be—.

On that point. Yes. When those audits were done, how much are we talking about? Mr. Chairman, the sweep this year was under $8 million. The last 2 years has been under $8 million.

So it would seem that that number is insignificant compared to the financial decisions that the state of Alaska needs to make. And Mr. Chairman, I'd note that this CS makes a couple of changes that are designed at reducing the impact of the sweep dollar amounts. So if you look at past swept balances, they include appropriations from the TVAP and STEP programs. The budget has structured those to comply with.

Statute and to direct lapsing balances back to the Unemployment Trust Fund, so those swept amounts would not be there in future years. And then the subcommittee has also adopted language or carryforward language for a number of other revenue sources that have swept in the past to try to keep those amounts with agencies. So with this CS, there would be even less fiscal impact of the sweep because most of the large amounts that have swept have been redirected. So really at this point, administrative exercise and not really much money there based on this. Yes.

Can you explain to the general public how the sweep is addressed by the legislature? So, Mr. Chairman, the Constitution requires that if there is a debt from the general fund to the CBR, that at the end of the year, the General fund and its subaccounts are swept to the Constitutional Budget Reserve. The past practice until FY21, I think was the year that we broke that past practice, was that the legislature on July 1st would reappropriate the balances of subaccounts, not of the actual general fund itself, back to those subaccounts. And so on June 30th, the sweep occurs on July 1st. There transferred back.

By reversing the sweep, the Division of Finance doesn't need to go through and reconcile each of those funds and those amounts. So what does the legislature have to do to accomplish that? Mr. Chairman, the language in this CS appropriates the subaccounts back from the CBR to the— from the CBR back to the subaccounts. And the vote? Mr. Chairman, that is currently a 3/4 vote.

Yes. So that's a separate vote that both bodies have to make. Yes. So I think that that is something that we should give serious consideration to, and hopefully that message is conveyed to the other body because of the importance of getting the information early so we can make our financial decisions. It seems to me that it's just sound financial management.

Senator Kaufman. Thank you, Chair Hoffman, Lexi Painter. Has there been any work done to come up with like what the standard variable might be? So if we have a somewhat unpredictable delta, have we looked at trying to come up with what that standard variable might be so that we can plug that in as a factor when we're doing budgeting. Through the chair, Senator Kaufman, that's been an ongoing process for at least the last 6 years without a ton of progress, I would say, because of staffing shortages and especially the Division of Finance over time.

Back in 2020, the ACFER came out for— I think it was the FY19 ACFER, it would have been. That showed that we had missed our projection on the CBR by $400 million in the opposite direction, that there was $400 million less in the CBR than projected. And there was an effort at that point to try to go through and start this process. And because of the staffing challenges, that really hasn't made a whole lot of progress to try to narrow down what that is. I know the administration is still working on that, and you know, I think that's an ongoing process.

There's a lot of factors at play here, and the Department of Revenue has been working on their side of it to the extent they can. One example of the result of that was this year the Department of Revenue and their revenue, revenue forecast changed. They did a very in-depth analysis of program receipts to try to better align the revenue sources book view of program receipts with the accounting actual view. And they found that I think it was about $30 million more UGF revenue was accruing through program receipts than they had previously been projecting. And so if you look historically, there's a difference between the audited financials on our revenue numbers and what the revenue sources book reports.

And that was one of the factors. So they were able to go through— it took their staff quite a bit of time, from my understanding, to do that reconciliation, but they did find, you know, $30 million of the problem. I think we've been working, and this committee I know has been working with the fire suppression team in the Department of Natural Resources. That's one of those items where there's multiple, multi-years where we may get federal reimbursements many years after the fact, and that can contribute to the uncertainty of, you know, we may think that in FY23 we spent a certain amount on fire suppression, but we find out that, you know, we get reimbursements later, we have additional amounts. You know, this year in the fire suppression appropriation in the supplemental, there were bills from all the way back in FY23 that were unpaid.

But there was also in this bill right now, there's ratifications for fire suppression of bills that had been paid beyond what their appropriations were for. So trying to reconcile that is something that the Department of Natural Resources has been working on, and it sounds like they've made a lot of progress on that. Again, that's one of the many factors, um, and some of these were identified back in 2020, and it's just taken this long because of, I'd say, insufficient staffing, um, to both get the ACVER done in a timely fashion and then to try to reconcile between budget and accounting, which isn't quite as essential to their view as getting the ACVER done, but from our budgeting standpoint is obviously pretty important. But it's been a long process to try to work on that. Senator Kaufman.

Thank you. Thank you, Senator Kaufman. Please proceed, Mr. Painter. So the next slide shows some potential scenarios for the supplementals in SCS-1. And again, these assume that the higher education fund can be repaid using the FY25 surplus and that doesn't have to count against FY26.

That's not 100% certain. That's what I think is probably likely based on what we see in the ACFR, but the administration is working to try to determine exactly how to account for that still. So the spring revenue forecast was for about $6.5 billion. Management plan last year was about $6 billion, so that left a surplus. However, House Bill 289 as enacted used up most of that.

Leaving a surplus of $44 million. So SCS-1 adds $11.6 million of governor supplementals to that. We know that tomorrow or the next day we will see additional governor's amendments that may add to that. We don't know the amounts. They may be relatively minimal, but it sounds like they do have potential additions.

In talking to the Department of Education, the K-12 estimate that was in the bill last year is about $6.7 million low compared to what they actually are paying out. And so that will be an increase. And then again, for the sake of these scenarios, we are assuming that the higher education fund can be repaid with last year's amount. So that reduces the appropriations by $129.6 million and gets to an adjusted surplus of $155 million. So in SCS 1, there is $96 million for energy relief.

That would get paid first, and then the remainder up to $100 million would go to K-12 outside the formula funding. And so assuming these factors, that would be $59.3 million. One of the variables here is revenue. So we know prices have been a little bit above the forecast so far. If they remain at the forecast for the rest of the year, we'd get about $25 million over the forecast, and that K-12 appropriation would go up to $84.

$94 Million. If they average about $95 million for the rest— excuse me— for the rest of the year, then you would hit the max for the K-12 appropriation and the remainder would go to the SBR per appropriation language last year. So the amount for these things again is variable. It is going to depend on actual revenue. It is going to depend on these remaining supplementals and how the higher education fund is addressed in the end.

But it is possible that entire $100 million for K-12 will have revenue behind it. But that won't be known until the end of— until after the fiscal year is closed. One thing I would add about the way those appropriations are drafted, they clarify that the determination of what that revenue is available for these appropriations will be made as of August 31st based on preliminary actuals. And that's just kind of a necessity with timing. That's how the administration has had to interpret these in the past, but it's, I think, bolstering their interpretation that they have to execute these appropriations when— in a timely fashion.

So in order to get money into the dividend fund, to fund in FY27, they have to use preliminary revenue numbers, not post-audit revenue numbers. If they waited until after the audit, it would be after the dividend was paid. And same with K-12. If you determine in May that there's an amount of.

To the districts, that's too late for the districts to incorporate in their budget. So it directs the administration to do that based on preliminary actuals in August. That does mean that it's possible final actuals will be different and the legislature may have to go back and address that next session. But it, it's an attempt to make these things easier to execute for the administration, I suppose. I'll make my reservations.

Please proceed. So the next two slides are a couple of different versions of FY27. So this version is based on appropriations that are out there with kind of minimal placeholders. So the first column is the governor's budget, Governor Amend Plus, not including any appropriate additional items that we may see later this week. The next is the House and finally the Senate.

They all have the spring forecast. They have different adjustments. The biggest adjustment is for NPRA revenue, counting that as UGF, and then the other is for use of program receipts that would otherwise lapse. That varies based on how they built their budgets. So agency operations, you can see the differences there.

The Senate is between the Governor and House numbers. Statewide items, the Senate is above the other two because of the additional community assistance and disaster relief funding. For the capital budget for the governor, we're assuming, of course, the governor's capital budget, the House at this point plugging in the governor as well. And then the Senate, this is the bill that passed the body plus the mental health capital appropriations in the mental— in SCS 1, and then the PFD appropriations. And so that gets to the governor having a deficit of $1.16 billion, the House having a deficit of $111 million, and then the Senate having surplus of $236.8 million.

And again, this is sort of the standard view without adjustments for things we know are coming or agreements. This next version makes a few changes. These are a scenario for the co-chair that matches some of the co-chair's assumptions. First is to budget based on $73 oil rather than on $75 oil in the forecast. That reduces revenue by $68.8 million.

The next is the legislature received contracts for the Public Safety Employees Association in both DPS and DOT, two separate contracts earlier, and the governor is expected to submit amendments later this week incorporating those. The placeholder we had been using was $10 million. Talking to OMB, it's probably closer to $7 million, but we'll have an exact number when those amendments are submitted later this week. The co-chairs asked to add a placeholder for fiscal notes of $5 million. That's obviously uncertain at this point.

And then for the capital budget for the House and Senate, they asked to see— or you asked, I suppose, to see $360 million, which is the agreed-upon number between the two bodies. And so that leaves the House with a deficit of $385.6 million, the Senate with a surplus of $51.3 million, which aligns with the target of having a $50 million buffer for next year.

Mr. Chairman, that is the conclusion of my comments. Looks pretty close to what we wanted to see. Are there questions of Mr. Painter at this point?

Seeing none, any other closing comments before we adjourn this afternoon session? Let's see what we have for meetings next.

Our next meeting is—.

We have—. Yeah, amendments on the operating budget are due in my office. To the attention of Pete Eklund by 4:00 PM Friday. Our next meeting is scheduled for tomorrow morning at 9:00 AM. Um, an update of the schedule will be posted.

Any further items to come before the committee?

Seeing none, we are adjourned.