The Alaska Legislature has a new, Democrat-led House Majority Coalition, but the budget the House passes will still have to get through a Senate majority intent on deep, though unspecified, budget cuts.
On Tuesday, the first day of the legislative session, Senate President Pete Kelly (R-Fairbanks) called the budget the “overarching issue” of the session.
“I think if the people of Alaska were to ask us what we’re going to do here, I think it’s important that they know we’re not here to wreck government; but neither are we here to save it. We’re here to make sure that government makes sense for the people of Alaska,” Kelly said in a press conference.
The State budget has been cut over $3 billion since it reached a peak of $7.6 billion in 2013, but the projected deficit is still $3 billion for Fiscal Year 2018 due to low oil prices.
Another $3 billion withdrawal from the Constitutional Budget Reserve (CBR) would leave about $1 billion in that savings account in July of 2018. The Office of Management and Budget (OMB) says that it would be unwise to drop below $2 billion, while a best practice would be to keep at least $5 billion in the CBR.
In a presentation to the Senate Finance Committee Wednesday, OMB Director Pat Pitney said that Gov. Bill Walker’s plan to restructure the Permanent Fund and use its investment earnings to fund government will grow the CBR to $8.1 billion by FY 2027 while maintaining about $8 billion in the Earnings Reserve Account.
The Senate majority has had a different response to the deficit, announcing a plan to cut a further $750 million over the next three years with a target of $300 million in FY 2018.
Senate Finance Co-chair Lyman Hoffman (D-Bethel), who is taking over the operating budget from Kelly, could not list any specific cuts Tuesday, but said the Finance Committee will look to the largest four State departments: Education & Early Development; Health & Social Services; Transportation; and the University of Alaska.
“We need to keep applying pressure in a downward mode so that Alaskans can have the government that they want,” said Senate Finance Co-chair Anna MacKinnon (R-Eagle River). “I’m interested, as well as members of my caucus, in bringing forward a spending limit calculation that would hold the growth of government.”
Kelly said that though the Senate majority acknowledges the necessity of a Permanent Fund restructuring, “We are not going to act on the earnings reserve until there is a spending limit in place and proven reductions.”
In a press conference Wednesday, House Finance Vice-chair Les Gara (D-Anchorage) indirectly called out the Senate majority for its proposed unspecified cuts.
“We’re in Day Two. We’re not going to come out with sort of false numbers and say, ‘This is the number that the budget’s going to be.’ We’re going to look at everything and look for smart cuts, but not reckless cuts,” said Gara.
“We’ve seen some of the pre-filed legislation,” Senate Majority Leader Peter Micciche (R-Soldotna) said Tuesday. “We understand that [the House majority is] focused on some things that perhaps are not priorities for us. We are focused on solving the fiscal gap situation in this state.”
But House Speaker Bryce Edgmon (D-Dillingham) insisted Wednesday that the House majority is taking the budgetary issues seriously.
House Finance Co-chair Paul Seaton (D-Homer) said his committee will release a bill soon that will likely include a restructuring of the Permanent Fund, some changes to the Permanent Fund dividend, and some taxes.
House Resources will also put out a bill addressing oil and gas tax credits. The State’s tax credit liability will build to nearly $1.4 billion in FY 2018, according to the Department of Revenue.
Seaton said that the House majority’s plan will “autocorrect” State spending.
“A spending cap is something different,” he said, referring to the Senate majority’s suggestion. “It has one use only, and that is to constrain and limit future legislatures from addressing the problems that may occur in the future.”
“We do not believe we can cut our way to a sustainable fiscal future in Alaska,” Edgmon added.
Senate Finance Talks Taxes, Reduced PFD in First Look at Budget
Walker’s proposed FY 2018 budget, released in December, is roughly the same as the enacted FY 2017 budget. It recommends about $30 million in spending cuts.
On Wednesday, the House formally introduced the operating budget as HB 57. Historically, the House has taken the lead on the operating budget, while the Senate has been the first to address the capital budget.
“The budgets that this administration has brought forward are not what we’re used to seeing, so it doesn’t surprise us that there’s a large hole, and we will probably fill it differently,” MacKinnon said Tuesday.
“We’ll fill the hole. It will be a combination, I suspect, of budget cuts and some revenue,” she clarified.
MacKinnon’s consideration of taxes is not shared by everyone in her caucus or Senate Finance, as a preliminary hearing on the budget made clear Wednesday.
“What the Senate’s come up with so far, in terms of looking at the budget, I think is a very good start,” Sen. Mike Dunleavy (R-Wasilla) said in support of the unspecified $750 million in cuts.
“It’s been said that you can’t cut your way out of this. But you can’t get your way out of this without cuts. That’s just a fact. We cannot support the size of government that we have now,” Dunleavy said.
“You can’t cut your way out of it,” Senate Finance Vice-chair Click Bishop (R-Fairbanks) agreed, “but what you have to realize is you’ve got to have new revenue, as well.”
Bishop has reintroduced a proposed head tax to fund schools, construction, and maintenance. There is now over $2 billion in deferred maintenance statewide, he said.
Micciche criticized the inclusion of the motor fuel tax and Permanent Fund money in the budget as “phantom revenue” that has not yet passed the legislature. He asked Pitney if Walker will veto a portion of the PFD again if his Permanent Fund bill does not pass.
“We very much hope we don’t have to face such a decision and we aren’t still in a crisis at the end of this session,” Pitney responded.
Dunleavy, who pre-filed legislation to restore the vetoed portion of the 2016 PFD, asked Pitney, “How does taking $700 million out of the hands of Alaskans, where some of your poorest will spend it in the state in the private economy… how does that help the economy and those individuals by removing those $700 million?”
That $700 million will pay for things in the future that people depend on, like health care, education, and roads, she said.
But Dunleavy said that keeping the budget at the current level of $4.3 billion, adding taxes, and cutting the PFD is asking more of Alaskans during a recession.
“How does this budget help the private economy?” he pressed. “Is it the philosophy of the administration that the government knows how to spend the people’s money better, or that the people know how to spend the people’s money better?”
Capital spending serves design and construction companies in the private economy, Pitney responded. Medicaid spending supports jobs in hospitals and clinics. Preserving the PFD supports retail jobs.
In total, Pitney said, 46 percent of State spending goes out to private employers and communities.
“In lieu of not funding those communities, there could be an impact on property tax, increases on sales tax. So we’re protecting the communities from having that. That will have a benefit to the overall economy,” she said.
Senators Accuse Walker of Playing Games with Community Assistance
Hoffman did not appreciate the Walker’s Administration’s claims that its budget will aid communities.
“To say… that this budget ‘fosters safer communities’ and maintains payments to communities- that is not the case,” he told Pitney.
Last year, at the end of the regular session, the Senate Finance Committee introduced four bills that would have shifted significant State costs onto communities. The only one to survive public outcry was a bill cutting community revenue sharing in half.
The program was changed from “revenue sharing” to “community assistance” to reflect the State’s reduced revenue.
Walker’s proposed budget does not include the $30 million from last year’s community assistance bill that he signed.
Hoffman called it a “slap in the face for all the fine work this committee instituted.”
“This does not maintain the commitment to the communities that we put forth in the rewrite of the community assistance program,” Hoffman said of the budget. “This is a complete reversal by the administration’s position from last year.”
The exclusion of the $30 million means the assistance program is facing a further cut of one-third, said Hoffman.
“Any department that would face a 33 percent reduction in the State of Alaska- say, the Department of Education- would be crying, ‘Foul,'” he said.
MacKinnon and Hoffman both suggested that Walker deliberately left out community assistance money to put pressure on the legislature to pass Walker’s revenue bills.
“I don’t want to play games,” said MacKinnon. “We are trying to set politics aside.”
Walker’s capital budget includes $22 million in designated funds for construction of a new ferry to replace the Tustumena.
“The budget that you’ve submitted to us prioritizes the replacement of a ferry over stabilizing funding to smaller communities,” MacKinnon told Pitney.
“If something has already been through both [legislative] bodies and has enjoyed the blessing of a signature by the governor, I think it needs to be in the budget,” Micciche said of the community assistance funds.
Pitney told committee members that the Walker Administration fully supports the community assistance program and intends to put $60 million in the FY 2019 budget to compensate, but felt that the budget crisis this year made it unwise.
“If the governor supported the program, it would be in the budget,” MacKinnon retorted.
On Thursday, Senate Finance will hear from Department of Revenue Commissioner Randall Hoffbeck regarding the State revenue forecast.