It’s an exciting time for budget hawks. House budget subcommittees have completed their work over the objections of House minority members, who say the largest budget items have not been cut.
Gov. Bill Walker introduced a Fiscal Year 2018 budget in December that looked strikingly similar to the FY 2017 budget following Walker’s vetoes.
At $4.2 billion — or $4.9 billion if you include the Permanent Fund dividend (PFD) — the FY 2018 operating budget represents a $57 million reduction in unrestricted general fund (UGF) spending.
UGF are funds not tied to specific programs, as opposed to designated general funds (DGF), which tend to spend related revenue, like university tuition or Fish & Game license fees. UGF are also used to gauge the budget deficit.
Walker recommended cuts to 14 of the 19 agencies in the operating budget, with the largest cut of $73 million UGF going to the Department of Transportation (DOT).
The only agency with an increase over $500,000 was the Department of Education & Early Development (DEED), at $6 million.
House subcommittees are recommending that three of the agencies Walker tagged for an increase — the Department of Law, the University of Alaska, and the Legislature — receive cuts to their budgets.
However, House budget subcommittees did not recommend dramatic changes to Walker’s proposed budget, prompting House minority members to call the subcommittee process “flawed.”
Rep. Lora Reinbold (R-Eagle River) went further at a press conference Thursday, calling it a “mockery” and suggesting that minority amendments were not considered.
“This year, behind closed doors, the amendments were just eliminated, and we were not warned of it,” Reinbold said. “That is politics at its worst.”
Reinbold served on three subcommittees for the Departments of Law, Military & Veterans’ Affairs (DMVA), and the Judiciary.
Law subcommittee Chair Jason Grenn (I-Anchorage) explained in subcommittee documentation that he ruled out of order two Reinbold amendments cutting $2.5 million from the Civil Division. Two other Reinbold amendments to the Criminal Division were offered and failed.
Reinbold said she would bring her larger amendments on the House floor.
“Sadly, the Democrats aren’t understanding that we’re in a recession,” Reinbold said. “They’re asking Alaskans for an income tax to pay on labor. They want to tax labor! In addition, they want to take your Permanent Fund dividend, rather than decreasing the massive footprint of government in Alaska.”
Earlier last week, Rep. Dan Ortiz (I-Ketchikan) said that an income tax is part of a fiscal plan to reduce economic uncertainty for businesses wanting to invest in Alaska.
“While nobody is jumping at the chance of paying an income tax or paying a sales tax — nobody’s excited about that — there are people out there — a good number of people out there — that recognize that it very well might be what we need to do in order to serve the best interests of the state of Alaska overall and to eliminate that uncertainty,” he said.
Rep. Reinbold’s Claim That Budget is Growing is Not Accurate
Reinbold criticized the Walker Administration Thursday for comparing the FY 2018 budget to FY 2015, a year she said was artificially inflated by a $3 billion deposit in public employee retirement accounts.
Without that comparison, the budget is actually growing, Reinbold insisted.
The first point is true, but misleading. The second is wrong.
Spurred by the Senate Finance Committee, the State made $3 billion in retirement payments in FY 2015. Using Reinbold’s preferred figures of total dollars spent, rather than UGF, the retirement payments bumped the budget to $14.6 billion, including federal money.
Yet the following year, it dropped to $10.6 billion, a decrease larger than the retirement infusion.
The $3 billion retirement payment has reduced subsequent budgets and the deficit because it is a reduction in debt, according to Legislative Finance Director David Teal.
And the retirement payments are not part of agency spending, which has decreased by 3.4 percent (or 16.5 percent UGF) since FY 2015.
No agency has seen UGF growth in that time. Only the Departments of Health & Social Services (DHSS) and Commerce, Community, & Economic Development (CCED) have seen total dollar growth. DHSS grew in part due to federal dollars associated with Medicaid expansion, and the legislature last year approved $55 million DGF for CCED to hold down premiums for “high-risk” individuals on the health insurance market.
Walker’s amended FY 2018 budget, including UGF, DGF, other State money, and federal funds, totals $9.6 billion, a decrease of $42.9 million from last year.
The State has cut its UGF spending by 44 percent from a peak in FY 2013.
All those cuts are in nominal dollars, not taking into consideration inflation or population growth. In real per capita dollars, Walker’s proposed FY 2018 budget is one of the smallest in 40 years.
House Majority Not Proposing Cuts to Education or Health
House subcommittees, mostly with Walker’s encouragement, propose to add about $13 million to the budget total. Most of that comes from $10 million in federal grants for school breakfast and lunch nutrition programs.
Increasing education funding will not sit well with the Senate majority, which announced Friday it is seeking five percent cuts from DEED, DOT, DHSS, and the university.
House minority members agree with their Republican counterparts in the Senate.
“When you have a deficit the size we have in Alaska, you can’t only cut where it doesn’t hurt anybody,” said Rep. Dan Saddler (R-Eagle River).
Reinbold targeted the $2.7 billion DHSS budget — $1.1 billion of which is UGF — and the federally-funded Food Stamp program for cuts:
I’ve heard some unbelievable testimony of how lucrative our program is. For example, I was at Costco, and the entire basket was full of crab, salmon, and steaks. And I asked the cashier, “Was that an EBT card? Was that food stamps?” And they said, “Yes, it was. This happens all day long.” We have serious issues with our — I call them “Un-fare” — but welfare programs, and we absolutely need to tighten our belts out there, and I do believe there needs to be sideboards put on it.
“Benefits going to able-bodied adults who have the ability to maybe go out and get a job and be able to pay for whatever they have going on in their lives is taking away from somebody who’s not able to,” added Rep. Cathy Tilton (R-Wasilla).
The DHSS subcommittee is recommending one-time funding of $500,000 to clear a month-long waitlist for food stamps. House Finance has not yet considered that report.
Saddler noted that two-thirds of agency operations UGF spending goes to DHSS and DEED, but the House majority says those are smart investments.
“At some point, you can’t just keep cutting public education and cutting the future out of this state,” House Finance Vice-chair Les Gara (D-Anchorage) said.
The DEED subcommittee rejected House minority proposals to cut or eliminate funding for pre-Kindergarten grants and programs.
“That’s shooting ourselves in the foot,” House Majority Leader Chris Tuck (D-Anchorage) said of the proposed cuts to pre-K. “Those investments pay dividends way down the road as far as higher graduation rates, pursuit of higher education after high school, having successful learning careers through the K-12 system, keeping parents involved, which is a key factor in making public education successful.”
“While continued cuts need to be looked for, we need to be smart,” said Ortiz, the DEED subcommittee Chair. “We need to be thinking about what the long-term impact of those cuts are and make sure that we’re actually doing what’s in the best interests of all of our residents and also what’s in the best interests of the state of Alaska in terms of creating a sustainable workforce, an educated workforce, et cetera.”
Some of Biggest Proposed Cuts Are to Legislature’s Own Budget
So far, the House Finance Committee has voted on one-third of the subcommittee recommendations.
For the second year in a row, Walker is attempting to expand the rural presence of the Alaska State Defense Force, a $211,000 UGF increase House Finance rejected.
House Finance narrowly passed a $150,000 DGF amendment that fully funds the Fetal Alcohol Spectrum Disorder (FASD) media campaign championed by Senate President Pete Kelly (R-Fairbanks). In addition to funding advertisements explaining that no amount of alcohol is safe during pregnancy, the campaign placed pregnancy tests in the bathrooms of Anchorage bars.
House Finance Co-chair Paul Seaton (R-Homer) explained in a hearing that every child in Alaska with FASD costs the State between $850,000 and $4.2 million in services.
Rep. Tammie Wilson (R-North Pole), who voted against the amendment, said it is not the job of government to spend money on such a campaign.
“I’ve always had a problem thinking that someone sits down at a table, gets ready to take a drink, and says, ‘I have to go to the bathroom and go have a pregnancy test done.’ I’ve never kind of got there,” she said.
The committee also approved spending about $250,000 UGF to hire two corporate auditors, which Seaton said will bring in an estimated $1 million in tax revenue.
“Are these people that just don’t pay their taxes, or are these people that might err in the amount of calculation?” Rep. Lance Pruitt (R-Anchorage) asked about the targets.
“These are sophisticated corporations that are doing their best to pay as little tax to Alaska as possible, so they’ll study our statutes, and they will interpret the statutes in their best interests,” responded Tax Division Deputy Director Brandon Spanos.
Spanos said the resulting audits are rarely a “slam dunk.”
“A company doing business in Alaska might be a member of a much larger corporation, and they might claim that they’re not unitary with their parent, meaning that the business they do in Alaska should only be looked at as a separate entity. That’s hardly ever the case in our modern world. Giant corporations control their subsidiaries, and generally the income from the parent company should be part of the tax pie, so to speak,” he said.
“If you’re not including the income from the parent company in that pie, the pie is much, much smaller, and the income that we receive — the revenue that we receive — is substantially less,” Spanos concluded.
The House Finance Committee is scheduled to consider the remaining subcommittee reports on Monday and Tuesday. On Wednesday, they will introduce a committee substitute for the operating budget incorporating all the recommendations.
One subcommittee recommendation that may not see unanimous consent is a $1.1 million increase to the Department of Fish & Game (DFG). Ortiz, the DFG subcommittee chair, says previous cuts to the department are costing the State fish tax revenue.
The legislature has also proposed a $2 million UGF cut to its own budget. That would include a three-quarter cut ($860,000) to per diem while in Juneau, a $360,000 cut to the House budget, and a $240,000 cut to the House Finance budget.
Public testimony on the budget begins Thursday with Homer, Kenai, Ketchikan, Kodiak, Mat-Su, Seward, Utqiagvik, Dillingham, and Fairbanks.
Anchorage, Sitka, Petersburg, Delta Junction, Unalaska, Glennallen, Tok, and off-net sites are scheduled for testimony Friday.
Bethel, Cordova, Kotzebue, Nome, Valdez, Wrangell, and Juneau will testify on Saturday.