A Senate Finance hearing Monday highlighted that the legislature’s budget process has not been as efficient as it could be. That process has taken time away from generating a long-term fiscal plan.
Article II section 13 of the Alaska Constitution confines appropriations bills to appropriations.
Nevertheless, every year, the legislature adds intent language explaining how it wants agencies to spend the money it allocates. Ironically, much of the recent intent language has directed agencies to seek efficiencies or generate reports about how they would so.
“From a legal perspective… the biggest problem is that most intent language is not enforceable,” legislative counsel Megan Wallace told Senate Finance.
The Alaska Supreme Court held in Alaska Legislative Council v Knowles that the Alaska Constitution allows governors to only veto appropriations from appropriations bills.
Therefore, intent language must pass a five-part test to avoid an unconstitutional end run around the governor’s veto power: “ [T]he qualifying language must be the minimum necessary to explain the Legislature’s intent regarding how the money appropriated is to be spent.  It must not administer the program of expenditures.  It must not enact law or amend existing law.  It must not extend beyond the life of the appropriation. Finally,  the language must be germane, that is appropriate, to an appropriations bill.”
Alaska Superior Court Judge Frank Pfiffner ruled in 2015 that the legislature’s addition of intent language attempting to block Medicaid expansion violated the confinement clause in Article II section 13.
“When it comes to intent language, my advice usually is that if the legislature wants an agency to submit a report or undertake a study, the best thing to do is to provide for that in substantive law,” Wallace said Monday.
When Sen. Peter Micciche (R-Soldotna) asked if all the budget intent language could be bundled into a separate omnibus bill, Wallace said it almost certainly would not meet a constitutional requirement that bills be limited to a single subject.
Director Teal: Legislature Asking Agencies to Do Things They Already Do
Senate Finance Co-chair Anna MacKinnon (R-Eagle River) noted that the amount of intent language in the budget is trending upward.
Last year, the legislature added 84 pieces of intent language to the FY 2017 budget. The Legislative Finance Division, tasked with monitoring compliance with the intent language, produced a 55-page analysis at the same time that it was also analyzing Gov. Bill Walker’s proposed FY 2018 budget.
“There’s gotten to be an awful lot of intent. Much of it is unclear,” Legislative Finance Director David Teal told Senate Finance members.
For example, Rep. Tammie Wilson (R-North Pole) asked for intent language blocking use of State unrestricted general funds (UGF) on roundabouts on Chena Hot Springs Road because her constituents did not want the roundabouts. But the roundabouts are going in anyway, funded exclusively with federal money.
Teal said he could not tell if the Office of the Governor had complied with Wilson’s intent language or not because use of federal funding follows the letter of the “law,” but probably not the spirit.
Agencies complied with most of the 84 intent items, but Teal said, “A lot of what they comply with is easy. They already do it. You’re telling them to do something they already do.”
The University of Alaska is in the process of complying with eight intent items that emerged from Wilson’s House budget subcommittee asking it to seek efficiencies, but Teal said the university was already exploring efficiencies because of budget cuts. A ninth item dealing with “reduced personal services for all employees across the board” and furloughs was not possible because it would violate labor contracts.
Teal said that agencies take intent language seriously, especially when they know they have to deal with the same budget subcommittee chair the following year. However, agencies are sometimes unable to comply because funds are not attached, as was the case with the Department of Fish & Game.
“So are we wasting our time here trying to discuss this whole intent language business?” Sen. Donny Olson (D-Golovin) asked.
“I believe that less intent may be more effective than more intent,” Teal replied. “There’s simply so much of it there that an agency may say, ‘You’re telling us how to run our programs. That’s what we’re supposed to decide. And if you have a specific new appropriation for something, then tell us how you want us to spend that money. But don’t try to take and carve out a chunk of money to do something unless you’re going to give us specific additional funds to do that.'”
“This is good feedback,” Sen. Mike Dunleavy (R-Wasilla) said. “How do we affect change in the manner that we want to affect it through this intent language and actually make it happen?”
MacKinnon said that a memo to an agency from a legislator’s office would likely have the same weight as budget intent language.
“We are generating a workload right now that does have value when it comes back to us,” she said of the intent language, “but does it have the best value for the use of our Legislative Legal? Is it the best value of use for our Legislative Finance team?”
“If we want intent language to become law, it’s going to have to be a very separate and very intentional process to not just send a message, but have it be a requirement,” Micciche concluded.
Case Study in Budget Inefficiency: Mt. Edgecumbe Swimming Pool
One of the items that Teal flagged for lack of compliance was the Mt. Edgecumbe Boarding School aquatics center.
The Department of Education and Early Development (DEED) took over operation of Mt. Edgecumbe, in Sitka, in 1985, providing education to students from around the state who otherwise would not have access to a traditional education.
The legislature first appropriated $20 million in FY 2011 toward construction of a new aquatics center at the school. After being scaled back due to budget cuts, construction is expected to cost about $27 million.
Operating costs for the pool are estimated to be an additional $700,000 per year.
Last year, the legislature added intent language asking DEED to find a fund source for the pool’s operation other than State general funds, but Walker’s proposed FY 2018 budget includes $100,000 UGF for pool operation.
Freshman Sen. Natasha von Imhof (R-Anchorage) compared the pool to rural clinics built by the federal Denali Commission.
“I’m fearful… that once the pool is built, that it will suffer. It could suffer,” she said.
“How do we become more effective at doing our job, and how does the administration become more effective at doing their job, so that in the end, we’re not asking for more money from the people of Alaska to pay for a government that may be viewed by some as having a difficult time executing what they already have?” Dunleavy asked.
MacKinnon, who is again responsible for the capital budget, said she had been assured in the past that the State would not be on the hook for the pool’s operating expenses. Since the original appropriation, legislators have been reluctant to claw back the construction funding.
MacKinnon laid the Mt. Edgecumbe pool alongside the stalled Knik Arm Crossing:
I certainly, as a representative of Eagle River, Alaska, JBER, Chugiak, Highland, Peters Creek — we don’t see that as a highest and best use of $10 million that’s getting ready to go into construction. But I would just point out that Mt. Edgecumbe and the people of Sitka, Ketchikan, and others might not see a bridge improvement that we allocated $40 million for Mat-Su, Palmer, and my community to be able to access into the Anchorage area to be able to go to work — they might not see that as a valuable use of money. So there’s this regional push and pull…It’s on me to tell my community that something is important to somebody else that might not be as important to us.
Sen. Hoffman Reminds Senate Finance of Big Picture
The Senate Finance Committee spent an outsized amount of time Monday discussing the Mt. Edgecumbe pool and the relatively small amount of money committed to it.
Senate Finance Co-chair Lyman Hoffman (D-Bethel) reminded the committee that the Senate majority has broadcast its intention to cut $300 million from the budget this year.
“Many people say that that is a large sum, but the problem facing us, as has been well-pointed out by our governor, is that we have over a $3 billion budget [deficit],” Hoffman said.
Hoffman is responsible for the operating budget this year.
In the past, he said, the legislature has spent 90 percent of its time addressing the budget.
Indeed, the legislature has gone deep into special session the last two years debating the budget.
But the budget is ten percent of the problem, said Hoffman. This year, the legislature must concentrate on filling the deficit.
Teal said that $2 billion of the $4.3 billion in the FY 2018 budget is caught up in statutory formulas that mandate spending levels, mostly in education and health care.
“That is the crux of the problem,” said MacKinnon. “If we can’t pass a piece of legislation to change or reform the programs that we’re working in, whether I support them or not, I’m left with a $3 billion budget shortfall — we, as Alaskans, are left with a $3 billion budget shortfall — with only $2 billion to work from to even look to reduce.”
Relatively small cuts like those debated by Senate Finance members won’t solve the problem, she added, hinting at use of the Permanent Fund earnings reserve to fill the deficit.
In a press conference Monday, Senate Labor & Commerce Chair Mia Costello (R-Anchorage) acknowledged, “When you cut the budget, you do see job losses.”
“What we are trying to do is mitigate that as much as possible because it’s the overall economy that we’re trying to focus on,” she said.
Economists testifying in Senate Labor & Commerce have said that use of the earnings reserve will have the fewest negative impacts on the Alaska economy of any option available to the legislature.
Yet Monday, Senate President Pete Kelly (R-Fairbanks) repeated an emphasis within his caucus on cuts.
“We’ll be delivering a responsible budget,” he said. “We’re probably going to be biased towards cuts, as I’ve said in the past, but some use of the earnings reserve is something we are going to be evaluating over most of the session. If we do use it, it will only be after we have passed a spending limit and we are satisfied with some pretty serious budget cuts.”
“No one’s going to be happy with what we do in the end, but I do think that acting and making really great strides toward addressing these issues is something that you’ll see happen this session,” said Costello.