I'll call this meeting of the House Finance Committee to order.
Let the record reflect that it is 9.05 AM on Wednesday, February 11th, 2026.
Present today, our representative staff, representative Moore,
representative Bynum,
representative Hannon,
representative Tamashevsky,
representative Galvin,
representative Jimmy, co-chair Foster,
co chair Schruggie, and myself,
co Chair Josephson.
Also present today are House finance committee staff committee assistant Helen Phillips.
Page to Lula Lostovka, Secretary Brie Wiley,
Secretary Leah Frazier.
We also have moderator Emily Mesh
from the Legislative Information Office.
Before we start, please mute your cell phones.
At this meeting, the committee will be introducing
and adopting committee substitutes for House Bill 263
and House bill 265,
the FY27 operating and the mental health budgets.
In committee members packets are the following.
HB 263, work draft version G.
HB263, red line comparison between governor and version g.
HB
agency summary totals UGF only the legislative finance division is in the
room for any technical questions during this meeting so with that do I have a
motion on the first committee substitute for HB 263 version G mr.
Coacher I move that the house finance committee adopt committee
substitute
for house bill 263 finance work draft
34-GH2498G as in golf.
Mark's dated February 6th, 2026 as our working document.
Okay. I'm going to object for the purposes of an explanation
and call my staff, Mr. Schroeder, forward to explain the changes in version G.
Mr Schroder, please come to the table, put yourself on the record and tell us
about this proposed operating budget version.
Good morning members of the House Finance Committee.
For the record, my name is Alexander Schroeder, staff to co-chair Josephson.
Through the chair, before the committee is proposed committee substitute for House Bill 263, the operating bill.
Work draft 34 GH2498 backslash G.
Also called House Committee substitute 1 or HCS 1.
Also included in the members' packets is a red line comparison between the governor's December 11th, 2025 operating bill in HCS1.
For the purposes of this walkthrough today, I will refer to the page and line numbers in
the redline comparison, not the work draft.
I want to begin by identifying three broad changes to this bill.
The first broad change is to address technical and conforming changes.
If the committee permits, I ask to refrain from getting into details about what those technical and conforming changes are.
In summary, the administration has different drafting requirements in the legislature.
So we translate the operating bill to meet legislative legal requirements.
The second broad change is that all supplemental items have been removed.
There are currently two supplemental bills, HB 283 and HB 289, under the committee's consideration.
The co-chair's position is that at this time, those bills and
their item should be considered separately from the operating bill.
So fair warning, I do not plan to walk through the supplemental items removed from this bill,
The third broad change is reverting to an adjusted base budget in accordance with
Legislative Finance Division's definition, with one exception to be explained in a moment.
The adjusted based definition is quote, the prior year's budget less one time appropriations
plus current statewide policy decisions, such as salary adjustments and
formula changes needed to maintain services at a status quo level.
Meaning deviations from statutory formulas in the previous fiscal year's budget are carried forward in this committee substitute.
Those items will be explained when I get to the language section.
It's worth noting that the Legislative Finance Division does not apply the adjusted base concept to certain aspects of the bill and
uses the governor's submission for those items.
FY26 language sections with no fiscal impact added or removed by the governor in his proposed budget this would include
a section such as implementing bonuses for state employees authorized by letters of agreement and
miscalculations by The Governor and formula-driven appropriations, which I have an example if anybody has any questions on that
If an item falls outside the definition of adjusted base it is unchanged from the Governor's version in this committee substitute
So that concludes the broad changes between the governor's proposed budget and the work draft before you ultimately this work
Draft is meant to be a starting point while we work through the finance subcommittee process and house finance amendment process
So unless there are any questions, I will now move on to specific items
So we're dealing with the operating budget, and I
noted in the mental health budget which will take up whenever we do prior to 10 a.m.
When we go to the floor
or Tococos, I called it version one, it's version I,
just so there's clarity on that.
But back to House Bill 263.
Any questions yet on anything?
Representative Stapp.
Yeah, thank you, Coacher,
Joseph, through the chair to Mr. Schroeder.
Thank you for being here.
So I'm just going to make the assumption,
you just tell me it is correct, there is a lot of kind of
Numerical changes here just to give an example that are not listed out in this changes summary that you're about to go through
Page 6 for example AG DC's budget number is potentially less. I'm just curious if that's just a
Your adjusted base change
Uniform that, you explain to the chair
mr. Schroeder
through the Chair representative staff you are correct the
Any of the number section changes you could find in the transaction compare in those totals
We didn't include them in our walk-through today or the summary of changes simply because
It's just the reverse of that transaction compared between adjusted base and government. Okay. Thank you
Okay, please continue mr. Schroeder
So here are the specific changes in this committee substitute in
The numbers section please turn and this is the red line comparison
In the number section, please turn to page 4, line 19, and this is lines 19 through 33.
We have flagged it in the committee members packets red line document.
Here you'll see the Department of Agriculture was removed.
On page 32, Line 25 to Page 33,
Line 4.
You'll be able to see it was restored as the Division of Agriculture under the Department of Natural Resources.
Again, that's page 32, line 25 to page 33, Line 4.
Technically, this is consistent with LFD's definition of adjusted base.
And it is also consistent, with the Superior Court ruling,
that quote, the governor transmit a proposed executive order to the legislature only during regular session, end quote.
This meaning that the executive order 137 was unlawful
and the creation of a department of agriculture void.
The second structure difference in the number section
is found on page 77.
Lines one through 19.
There myself.
where you will see the Alaska Marine Highway System
reflected as section four in numbers,
which is consistent with how the legislature
passed the FY26 budget.
And similarly, you'll see this removed
from the language section.
So this is adding AMHS back to the numbers section
The remaining changes in the numbers section are only reflected as differences in appropriation totals.
All transactions the governor proposed, the ones from the finance,
the one's before the Finance subcommittees were removed.
You can view those transactions in full in
the transaction comparisons between the adjusted base and the Governor's proposed budget on the Legislative Finance Division website.
That concludes the changes and number section.
So moving on to the language section. I mentioned earlier. There's one exception to
the adjusted base made in this committee substitute. So please turn to page 81.
That is also flagged in the members redline document.
So looking at section 11,
subsection C, this is specifically page 81, line 27
to Page 82, Line 1. Here the committee
substitute modifies their earnings reserve account deposit.
Instead of splitting the transfer from the earnings reserve account between the general fund and the dividend fund,
the co-chair believes that depositing all the funds to the General Fund first is a better starting position for the work of this committee.
This structure mirrors the same structure in last year's enrolled operating bill and
every operating bills since FY19 when the percent of market value draw began.
Yes, it does not yet appropriate a portion of the Gen.
fund to payment of a permanent fund dividend.
That appropriation will be revisited in the budget amendment process in this committee and on the House floor
Questions
We're still there are other opportunities of course to ask questions reference the staff
Please continue mr. Shorter the remaining language section items before through the chair
The remaining language section items before us are all adjusted based changes
So please turn to page 82 and this is specifically lines 5 through 8
Here you see that it removes the inflation-proofing appropriation to the Alaska permanent fund
The next change is on page 88
Line 6 through 14
Here you see it removes the state's employment assistance training program or STEP
estimated appropriations from the language section a
corresponding increase maintains funding in the numbers section for the Department of Labor and Workforce development
LFD notes that this language was new this fiscal year.
It is conceptually similar to the Alaska Technical
and Vocational Education Program
or TVEP language in section nine,
which was moved from numbers to language
in FY 24 and FY 26.
The next change is on page 89.
Line 15 through 18.
Here you see it removes the Department of Revenue section on externally managed investment profit sharing fees
The department reports that they have new profit-sharing agreements with public entities investment managers
And only if those external managers that have performed market benchmarks with these fees be paid
The next change is on the same page line 19 through page 90 or
Page 89 line nineteen through Page 90 line one
Here you see it removes language moving the Alaska Marine Highway System from a calendar year to a multi-year appropriation spanning two fiscal years
The change was requested in FY 26 and denied by the legislature it was request it again in the governor's
FY26 supplemental
Effectively it would allow the department to move any surplus in a current fiscal year forward and future year funding to fill current budget holes
The next change is on page 94, line 4 through 7.
Here you see it removes the appropriation
of arbitrage rebate related to investment earnings
in the Alaska International Airport System Reserve Fund.
Investment earnings in this fund have exceeded
allowable arbitra yields, so this item would allow
the earnings to maintain the bonds tax advantage status.
The next subsection is on the same page, lines 8 through 12.
Here you see it removes the backstop to the previous section
if the estimate is sufficient to cover arbitrage rebate.
The Next Change is starts on same Page, line 94.
Page 94 line 26 to page 95 line 1.
Here you see it reduces the school bond reimbursement
to 75% of statutory requirement,
which is the same as FY26.
The next change is on page 96.
Lines five through six.
Here, you can see, it reduced the appropriation
to the disaster relief fund to $13,044,800 UGF.
Which is matching the FY 26 enacted policy and keeping in line with of LFD's definition for adjusted base language items
Please note that lines 9 7 and 8 on this page removes the 40 million dollar
supplemental appropriation to the disaster relief fund because as noted earlier all
Supplemental items were removed from this committee substitute
So staying on the same page the next change is line 30 to to page 97
Page 97 line one. Here you see it reduces the regional educational attendance area and small
municipal school fund deposit to 75% of statutory requirement, again matching the FY26 policy.
For context last year the legislature funded school aid for cost of school construction at
75%, the governor vetoed the REAA deposit down to seventy five percent to match the school
The next change is on page 98, line 17 through 21.
Maintains FY26 policy for the community assistance fund deposit by adding $5,978,000 in UGF,
which would result in a $20 million disbursement in FY27, the same as FY 26.
The next FY27 adjusted base changes on page 101, line 6 through 13.
Here it adds 37,945,000 in UGF to meet the Alaska retirement and management board's actuarial recommendations for state retirement contributions.
For context, the governor did not fund the arm board's FY27 contribution rate instead
choosing a different rate which pays less upfront but more in future years.
And the last change is on page 104, line 30, to page 105, Line 13.
Here it removes the constitutional budget reserve draw to cover appropriations made in
the FY 27 budget.
Overall, the net reduction from the governor's bill to House Committee Substitute 1 in non-duplicated fund sources for the FY27 operating in statewide items is the following.
$2,358,386,400 in unrestricted general fund, $11,170,600 in designated general funds.
$7,772,100 in other state funds, and $31,328,200 in federal receipts.
If you include the appropriations in the governor's proposed capital budget, the surplus of unrestricted general fund in this operating budget is 819.5 million.
That concludes the differences between the Governor's December 11, 2025 operating bill and house bill 263 version G.
Happy to try to answer any any other questions
Okay
Represent by them
Thank you coach your justice in through the chair really quick. I don't need to tune depth of explanation
But just hoping for a little bit of oversight for two items
The first item was page 82 5 through 8
This is the inflation proofing removing that from the budget and then item
on page 89-19 through page 90, which is line 1, and that's the Marine Highway
moving the multi-year out and putting it into the number.
Is there just a brief explanation on the rationale?
All right.
Mr. Schroeder.
Through the chair.
The reason those two items were removed was simply because in LFDs adjusted base definition,
those would revert back to the previous year's version. The Alaska Green Highway System, for
example, was in the number section last year. the legislature denied it changing to
the language section, so this committee substitute puts it back into the numbers section.
On the inflation proofing, there was no inflation-proofing in last years budget,
That's why it's been removed in this committee substitute.
If you need further explanation, I'd be happy to call Mr. Painter up.
And I think it is important, and I know folks know this, but online as well,
that this is designed to give us a starting point, a launching off place,
with some consistent basis.
This is not what the budget will look like when we adjourn in May.
It just can't be for a variety of reasons, including the other body and
members wishes the entire house body, etc.
Representative Stapp.
Yeah, thank you, Coach, you're adjusting through the chair to Mr. Schroeder.
I'm going to try to basically translate what this document is doing very plainly.
Basically, we went from a budget deficit to a Budget Surplus because you deleted the
permanent fund dividend from the Budget.
Even though the language is in there, there's no fund source for it, so that's why we have
surplus.
And we are dramatically under changing our known expenditures for disaster relief, specifically
referencing Tifen-Haylong.
So that is how I would articulate the document.
I agree with the co-chair.
It's certainly a starting point.
How we are getting to a surplus is there is no appropriation
for any PFD in this budget currently.
Thank you.
Representative Kuchar Schruggi.
Yes, thank you, Kouchar, Josephson, picking up on, I guess,
kind of both the previous speakers.
This is procedurally an adjustment back
to where we started last year, essentially.
And I take the prior speaker's comments.
earnestly that I appreciate that he points out the fact that we are moving to a surplus
in this adjusted base budget, but I would note that frankly in my view it's too early
to talk about whether we're at a surplus or a deficit.
To my co-chairs point, this is just a very early starting point procedurally stripping
out changes that occurred from what we passed in last year's budget to get us to something
The prior speaker talked about disaster funding.
I think I likely speak for at least the majority in this room.
If not everyone that's here at this table that disaster
funding is a priority of this legislature and addressing some
of the costs that we're experiencing out in Western Alaska,
we have to do that.
Those are expenses that
that are being incurred and that we will have to pay, I think what we'll see in the supplemental
very soon is that this legislature is taking those disaster challenges very seriously and
that will be working to appropriate funds to fully meet that need.
But again, for the public that's watching, this is really a procedural step to revert
back and unwind some of the changes that occurred through the budgetary process and through
and this will just be a starting place for this committee to begin our work,
at which point I think through that subcommittee process through the amendment process,
we'll start to get a clearer picture as to whether or not we will have a surplus, a deficit,
what the appropriation may be for the dividend, what level disaster funding will be in there,
retirement, et cetera. There's many, many policy choices before this Committee and before the body
and we have to work through those and I look forward to doing so and
A good place for us to start our work and frankly one that follows years and years years
and year of precedent.
This is simply following the template that's been laid out in years past for to us start
our works.
So I just want the public to be very clear.
This a procedural step for me to begin our working and have an unwound budget that we
can work with.
Thank you.
certainly the majority's position.
Today on the floor in about an hour, we're going to be adopting the governor's,
I hope we adopt, the other body did, I think unanimously, financing plan for disaster relief.
So the Governor said I need X urgently and we are saying we want to give that to you.
In addition, our supplemental budget reflects that same urgency.
This is, again, just a starting point.
So I'm gonna go to represent Tom Myshevsky
and then co-chair Foster.
Thank you, co chair, Josephson, through the chair.
So just in regards to the CBR section,
it's completely removed.
So no, no CBL vote?
Was that your intention?
Mr. Schroeder.
Through the Chair Representative, Tom Shesky.
That's correct, there's no CBR section.
It's been completely moved at this time.
Follow it, follow it.
Representative Tom Fheskey.
Because I think we went through the same motion last year.
We removed it.
And then to only to have to try to put it back in.
So I'm just curious as why, what's the purpose of that?
Well, it was removed because in this version internally,
it doesn't have a purpose because it's a surplus budget.
Free fities?
Yes.
Free Fities.
Representative Thomas Chefsky, I'm reminded that secondarily,
I think my first comment is accurate,
but secondaryly, the adjusted base didn't have a CBR vote.
So we're trying to stay true to it.
Okay, thank you, okay.
Co-chair Foster.
Thank you.
Kuchar, Josephson, always appreciate representative steps.
Simplicity,
I like getting into the point.
I guess I would just give my version
of how I see this rollout of this bill.
I didn't think the purpose of this introduction of
this operating budget was to show that we had a surplus.
I'm certainly not out there.
Everybody knows that the PFD's not in this.
That's the biggest elephant in the room.
And I think we all need to talk about that.
And it's going to be an ongoing conversation.
What I did want to say is that
When I think of adjusted base, I
think last year we put in some things in the budget.
There were one-time items for, and I'm
just going to make something up.
Let's say that we've put a billion dollars for a road
to know or something, but that was just
meant to be a one time thing.
And so we wouldn't want to just automatically put that
in this year's budget, so, we're taking that out,
and that's what adjusted basis.
With regard to the PFD again, I think it's the elephant in the room.
It's that the item that we're all going to need to try to work through.
I also think we are recognizing that
we have the spring forecast that were waiting for,
the oil prices to see where we land in terms of what revenues we were going
to have, so I that's important.
And then also with regard
to disaster relief,
I don't think there's anyone out there that saying that
fund disaster relief.
I fully expect that we're gonna be doing
something along the way here.
And so, they certainly affects my district as well
and in my neighbor's district.
And, so I don't see that.
We're going to have any issues.
Nobody's, I think everyone's very sensitive
to the fact that, we need to support our neighbors.
So with that I just wanted to kind of paint my picture
and my vision of what this budget was doing.
Thanks.
Any other comments about version G questions about Version G represented more.
Thank you, Church Josephson.
I think that just for the record, my opinion about the CS would be that there's serious
policy implications here and with them being completely stripped out, I don't think this
is normal.
the PFD talk later. And I don't think that's something that we should be entertaining right now. But
so thank you.
I think the history, the recent history is that removing the pfd at these
stages is fairly typical.
Co-chair shruggi.
Thank you, co- chair josephson.
Recent comments I want to again remind folks that what we're really doing is taking out the one-time items and taking
out The policy choices that
We're going back to a place of adjusted base so that we can make the policy decisions at this table. What do we want?
This budget to look like so really it's an unwinding. I don't think it
I certainly speaking for myself. It's not from aplace of leverage. This is a procedural step
to unwind choices that have been made since our last budget passed so that we can then
make new policy decisions as a body here at the finance table.
And so just again speaking for myself, if it was a policy choice, I likely would not
be reducing the amount of funding for some of the items being reduced here.
The school bond that reimbursement I don't know that that's a policy choice that I would make
But I do know
that following the process of prior legislatures
To get us back to a place of adjusted base
Allows us to then go and make cleaner decisions here at the finance table. So the policy decisions are still in front of us
I understand how it may appear that we're making some of those policy choices now
But this is a very procedural step
to unwind what's been done since our last budget passed
so that we have a fresh place to start from
and to move forward with.
And again, I look forward to that process here at the table
and making those policy choices
after a bunch of study and discussion here
at this table.
Thank you.
Okay.
We were joined by Representative Allard some time ago.
Happy birthday, by the way.
Hopefully we'll hear more about that on the floor.
I bet we will.
All right, I don't see any other questions. I'm going to slowly remove by talking slowly my objection
Okay, so we have a renewed objection to version G
Would you like to speak further to your objection? I would think yeah, thank you chair
Yeah, appreciate the explanation from the members in the majority of the committee. Oh, just say that
If the argument is this is the norm and this as the adjusted base
You have made fundamental structures, changes that do not reflect that.
The number one is you were depositing the entirety of the draw from the dividend fund to the general fund.
Okay, that is not the normative in the budget.
The policy decision could have been to leave the dividends split for the PLM draw,
but this is an intentional choice to put all of
We typically appropriate for the permanent fund dividend in the general fund for future appropriation.
And if the argument is we're just using last year's adjusted base,
I would like to note that there is no change in a foundation formula in this budget.
And, if you're using the last years adjusted basis, you would have done that as well.
So, I'm going to maintain my objection on this bill.
Thanks for letting me put my comments on the record.
put the entire, in their draft version, probably April.
Didn't they put entirety of the draw into the general fund?
For the record, Alexander Schroeder through the chair.
In the Senate version of budget, they did appropriate the earnings reserve account deposit all to the General Fund, and that was the version that
was adopted in the final budget that the governor signed.
So consistent with an adjusted base budget?
To my understanding, that's correct.
Okay.
Thank you, Kuchar.
Josephson, I believe between the years 2020 through 2024,
I want to say three out of the four years
the PFD was fully stripped out just
knowing that at the beginning of session
we were never able to come to a consensus in terms
of what that number was going to be
and knowing they're going have to
be ongoing discussions and so that was pulled out.
So we have a standing objection.
Are there any other comments?
Briefed ease.
Briefied ease?
Back on record at 9.36 a.m. Wednesday, February 11th in house finance the seeing no further comments
co-chair shruggi
I'm going to turn to you for a motion
brief it is
All right, we have a standing motion. We don't need further motion, so we'll call the role as to that motion
Representative Tamashaski no representative Allard no
Representative Bynum
Representative Galvin
Yes, representative Hannon. Yes representative Jimmy
Yes
Representative Moore no
Representative stop no
Representative Bynum.
No.
Representative Foster.
Yes.
Representative Schraghi.
Yes
Representative Josephson.
Yes
Six-Yay Five-Nay.
All right.
So by a vote of six to five CSHB 263 finance version G has been adopted as the working
We're now going to turn to House Bill 265.
I'm going look to my budget coordinator, Mr. Schroeder, to describe.
And for the record, we're setting aside for
the time being, obviously, House bill 263.
Mr Coachella, would you like a motion prior to going into an overview?
Sure, great.
Thank you, Mr. Coachear.
I move that House Finance Committee adopt committee substitute for House Bill 265 Finance Work Draft 34-GH2502 backslash-i marks, February 6th, 2026 as our working document.
Okay, I'll object for the purposes of an explanation for Mr Schroeder.
For the record, Alexander Schroder.
Through the chair, before the committee is the proposed committee's substitute, for house bill 265, the mental health bill.
Work draft 34, GH2502, backslash I.
A red line comparing the governor's December 11, 2025 mental health bill,
an HB 265 version I is included in the members packets.
However, I will not be referring to it for this walk through.
The changes in this committee substitute parody, the operating bill committee, substitute.
This work draft contains technical and conforming changes, and it also reverts to an adjusted
base budget in accordance with Legislative Finance Division's definition.
Please note that the Governor's December 11th Mental Health Bill contained mental health
capital items.
This committee substitute does not change the governor's request, preserving those items
and their funding per the December eleventh mental-health bill.
That concludes the differences between the Governors December 1,2025 Mental health bill
I'm happy to try and answer any questions.
Questions for the budget coordinator on the mental health CS?
Okay, I am going to remove my objection to it.
Is there a further objection?
Seeing and hearing none, version I, as in Igloo,
will be our working draft adopted unanimously.
for the mental health budget CS for House Bill No. 265 Finance.
I believe that concludes our business for today.
We're obviously setting aside 265, so that's clear.
Our next House Finance Committee meeting is scheduled for this afternoon at 1.30 pm.
At that meeting, we will hear two presentations from the Department of Health.
The first will be its FY27 departmental budget overview.
Then we'll hear an update on House Resolution 1,
supplemental nutritional assistance program and Medicaid implementation.
So with that, we are going to adjourn this meeting at 941.
We're adjourned.