Gov. Bill Walker released his proposed Fiscal Year 2018 budget on Thursday. Because Alaska’s fiscal situation has not changed, the new budget is strikingly similar to the current FY 2017 budget, with the exception of the Juneau Access Road.
The operating budget, which includes departments like Education and Early Development (DEED), would remain roughly the same at $4.2 billion.
Capital spending, which covers construction projects around the state, would increase from $96 million to $115 million.
However, Walker announced Thursday that no capital funds will be going to the proposed Juneau Access Road. Instead, the $38 million in State funds dedicated to the megaproject will be reallocated to other projects in Southeast, including Lynn Canal transportation.
At $73 million, the Department of Transportation is scheduled to see the largest cut in UGF spending.
“I am a builder by background and understand the importance of construction projects, but I am very concerned with our current multi-billion dollar fiscal crisis and must prioritize the need for fiscal resolution,” Walker said of his decision about the Juneau road.
“I think the Governor has made the right decision given our current fiscal situation, especially because the increased operational costs would have been added to the Department of Transportation’s budget if one of the build options had been selected,” Rep. Sam Kito III (D-Juneau) said Thursday. “My experience as an engineer has taught me to look closely at promises and pitfalls of any situation and, in balance, the Juneau Access project raised more red flags than green for me.”
Juneau Senator Dennis Egan (D) disagreed, saying, “In this day and age when everybody is tightening their belts, it’s difficult for me to understand the thinking that rejects moving forward with jobs and economic growth. This was a necessity, not a want.”
What Gets Cut and What Doesn’t
In the proposed operating budget, only the Departments of Administration, Education, Public Safety, and Military & Veterans Affairs see increases in total spending. Except for DEED, those increases come primarily from federal dollars.
The base student allocation (BSA) for public schools does not increase under the proposed budget.
The University of Alaska is scheduled for a $12 million cut, $5 million of which would be State funds.
The Office of Management and Budget (OMB) expects the State to realize savings of around $30 million by shifting some health care costs onto employees, mandating two days of furlough, and passing a new bill freezing non-union worker pay starting July 1, 2018.
Walker is also taking a $48,000 pay cut.
“While my pay cut will certainly not balance the state’s budget, I believe it is important to lead by example,” Walker said in a press release. “These are tough times for many Alaskans and fixing the state’s deficit requires that we all make sacrifices and pull together.”
UGF spending on operations has decreased 23 percent since FY 2015. Walker took office in the middle of that fiscal year.
Still, the Senate majority was not impressed by the modest cuts in Walker’s most recent proposed budget.
“I am disappointed the administration did not take their job more seriously and identify areas that should be cut, trimmed or eliminated,” Senate Finance Co-chair Anna MacKinnon (R-Eagle River) said in a statement. “We will identify additional reforms and restructuring to make our state government run more efficiently and effectively for the people of Alaska.”
Walker’s budget calls for a $1.2 million increase for the legislature, about half of which would be UGF.
Gov. Walker’s Plan to Reduce Deficit Still Relies on Permanent Fund
Also on Thursday, the Department of Revenue released its Fall Revenue Forecast.
Thanks in part to a recent agreement by the Organization of Petroleum Exporting Countries (OPEC) to reduce oil production, the per-barrel price of oil is forecast to be $54 in FY 2018. That price slightly improves the revenue forecast, bringing UGF revenue to $1.6 billion.
However, only $1.1 billion of that comes from oil. The rest comes from non-petroleum taxes and fees. And oil production in Alaska is still forecast to decline.
This seems to underline the premise for Walker’s Permanent Fund Protection Act (PFPA): oil is not the future of Alaska, at least not a dependable one.
As part of his budget proposal, Walker is reintroducing PFPA in the form that passed the Senate this year 14-5. The bill would use a percentage of the Permanent Fund earnings reserve for State spending, generating about $2.5 billion in FY 2018.
The Walker Administration is advertising that the deficit in FY 2018 will be about $900 million. But without passage of PFPA, it would actually be closer to $3 billion.
The budget includes an appropriation for a Permanent Fund dividend (PFD) of $1,000. PFPA calls for a $1,000 PFD in both 2017 and 2018.
In addition to PFPA, Walker is again proposing a motor fuel tax expected to generate $40 million in revenue, but unlike last year, he is not immediately introducing an income tax or a variety of other taxes.
While in the past members of the Senate Finance Committee have criticized Walker’s inclusion of speculative revenue in budget figures, the Senate majority expressed support Thursday for PFPA.
For the second year in a row, Walker proposes spending the statutory minimum, $74 million, on oil and gas tax credits, leaving an obligation of $900 million.
“This is simply not sustainable, and any responsible fiscal plan for the state must acknowledge that this needs to be fixed,” Sen. Bill Wielechowski (D-Anchorage) said of the credits in a press release.
“We appreciate the Governor’s sentiments, and agree that the time to act is now, but it’s impossible to get behind any fiscal plan when it doesn’t even include step one,” added Senate Minority Leader Berta Gardner (D-Anchorage).
The 30th Legislature is scheduled to gavel in January 17, facing the same problems as the 29th edition.