Presentation to Alaska Municipal LeagueNovember 19, 2015

1

Path to Fiscal Stability

  “We expect that if lawmakers do not enact significant fiscal reforms to reduce the imbalance within the next year, the state’s rating could begin transitioning downward.  The rating migration lower would likely persist and accelerate if lawmakers continued to fail to act…”

Alaska Rating Outlooks Revised To Negative Reflecting Its Large Structural Deficit

Standard and Poor’s Rating Service August 18, 2015 Report

2

3

Fiscal Challenge

Federal Funds$3.3 billion

(27%)

Permanent Fund

Inflation Proofing

& Dividends$2.3 billion

(19%)Other State

Funds $630 million

(5%)

Designated General Funds

$914 million (8%)

UnrestrictedGeneral Funds

$4.9 billion (41%)

4

Fiscal Challenge

Federal Funds$3.3 billion

(27%)

Permanent Fund

Inflation Proofing

& Dividends$2.3 billion

(19%)Other State

Funds $630 million

(5%)

Designated General Funds

$914 million (8%)

UnrestrictedGeneral Funds

Gap$2.7 billion

(23%)

UnrestrictedGeneral Funds

$2.2 billion (18%)

5

Fiscal Challenge

Education & Early Development Payments & Obligations Health and Social Services$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Top Three Unrestricted General Funds Spending Categories Total $3.4 billion

($ Millions)

K-12 Formula

Non-FormulaNon-For-mula

Oil Tax Credits

Retirement Contributions

Debt Ser-vice

Medicaid and Other Formula Programs

6

Educa

tion

& Ear

ly Dev

elopm

ent

Paym

ents

& O

bliga

tions

Health

and

Soc

ial S

ervic

es

Univer

sity

Corre

ction

s

Trans

porta

tion

& Pub

lic F

acilit

ies

Public

Saf

ety

Capita

l Bud

get

Admini

stra

tion

Natur

al Res

ourc

es

Fish a

nd G

ame

Law

Reven

ue

Comm

erce

, Com

mun

ity, &

Labo

r & W

orkf

orce

Dev

elopm

ent

Office

of t

he G

over

nor

Enviro

nmen

tal C

onse

rvat

ion

Milit

ary

and

Veter

ans

Affairs

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Executive Branch Agencies and Payments & ObligationsUnrestricted General Funds ($ Millions)

Econo

mic

Develo

pmen

t

Fiscal Challenge

7

Fiscal Challenge

8

Fiscal Challenge

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Fiscal Challenge

Oil Price and Production is Unlikely to Save AK this time:

Current price: $40/bbl and 500,000 bbls: 1.5B GF

FY16 Forecast: $66/bbl: $2.2B GF

Breakeven: $109/bbl and 500,000 bbls or $45/bbl and 1.6M bbls per day: $5B

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Operating Budget Reductions

Agencies reductions FY15-FY16: $412M GF Cuts in 1 Year

Most significant % reductions20-35%: Commerce, Military & Veterans Affairs, Labor & Workforce, Natural Resources, Governor’s Office

12-20%: Fish and Game, Revenue, Law, Administration, Transportation, Environmental Conservation

Most significant $ reductionsHealth and Social Services: $88 million (+ $1 million fuel cut)Transportation: $34 million (+ $15.5 million fuel cut)Corrections: $20 million (+ $1.8 million fuel cut)University of Alaska: $20 million (+ $4.5 million fuel cut)

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Operating Budget Reductions

Departments have been closing offices, a few examples :

• District Attorney’s Office in Barrow closed• Public health center in Seward closed• Vital Statistics office in Fairbanks closed• Juvenile Probation office in Homer closed• Trooper posts in Talkeetna and Yakutat

closed• State film promotion office in Anchorage was

closed

Executive Agencies: 500 fewer full-time permanent employees - December 2014 to July 2015

12

Operating Budget Reductions

Departments have been reducing or eliminating services, a few examples:

• Courts will be closed Friday afternoons• Cold-case investigations were eliminated• Inspections of public pools and spas were reduced• Reduced Trooper presence at Arctic Man and similar

events• Reduced VPSO positions• Reduced ferry service, some ferries will not be used

next year• Reduced snow removal and pothole repair

13

Operating Budget Reductions

Departments have been reducing support for entities, a few examples:

• Eliminated state support of Alaska Aerospace Corporation

• Eliminated state support for AVTEC’s nursing programs• Reduced grants to emergency communications systems• Reduced state support for seafood and tourism

marketing

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Fiscal ChallengeEfficiency Initiatives:

Maximizing service delivery under the new budget reality

Cross Agency Efforts Smart justice reforms Unified state facilities management Lean/continuous process improvement management Shared services for functions such as procurement and travel Travel process redesign Statewide IT consolidation, call centers, disaster recovery,

security, desktop support and data storage Re-examining charge back systems and streamlining internal

billing Re-negotiating procurement and lease contract Centralize collection of fines, debts, and attachments

Intra-Agency efficiency efforts are on-going within each agency

Executive Agencies: 600 fewer full-time permanent employees - December 2014 to July 2015

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Adjusted for inflation and population, the current budget is lower than most years during the post-pipeline boom

Fiscal Challenge

16

$3.0 billion transfer from CBR to retirement systems in FY2015

FY2013 FY2014 FY2015 FY2016$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

$10.0

$8.0 billion

$7.1 billion$6.1 billion

$4.9 billion

State GF Budget Reductions - $3B from FY13-FY16

17

Current Path

Status Quo Fiscal Path

Opportunity

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Current: Volatile Revenue and Corresponding SpendingExpected: Stable, Sustainable, Balanced Budget

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

$0

$2

$4

$6

$8

$10

$12

Oil Revenue State Budget

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Opportunity

ENHANCE PERMANENT FUND APPROACHpreserves Alaska’s financial assets

• (1) Maintain the value of assets – inflation proofing

• (2) Grow the value of assets – investment and oil revenue

• (3) Use investment income sustainably – formulaic draw

• (4) Stabilize annual budget – delink from oil price

-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- • (5) Share resource wealth with Alaskans – dividend payout 50%

of Royalty

20

Opportunity

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Opportunity

A Sustainable Budget - Fiscal Path

There are no easy answers to balancing a $3 billion annual deficit.

Takes some combination of four things:

1. Continued budgetary restraint

2. Changes to oil and gas taxes/credits

3. Strategic use of our existing assets

4. Balanced suite of broad based and other taxes

Action must be taken this session!

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Path to Fiscal Stability

23

Opportunity

24

Current Path

Status Quo Fiscal Path

25

Opportunity

A Sustainable Budget - Fiscal Path

Randall J Hoffbeck Pat PitneyCommissioner, Department of Revenue Director, OMBrandall.hoffbeck@alaska.gov Pat.Pitney@alaska.gov(907) 465-2300 (907) 465-4660

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