presentation to alaska municipal league november 19, 2015 1
TRANSCRIPT
Presentation to Alaska Municipal LeagueNovember 19, 2015
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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
9
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
10
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
14
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
18
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
19
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
21
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, [email protected] [email protected](907) 465-2300 (907) 465-4660
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