With four weeks left in the 90-day legislative session, the House passed Monday a Fiscal Year 2018 operating budget. Senate leaders, still awaiting transmittal, have already indicated there will be billion-dollar changes in their version.
The budget (HB 57) that passed the House increases unrestricted general fund (UGF) spending by $69 million over FY 2017 because it includes a $1,150 Permanent Fund dividend (PFD). That PFD adds about $100 million to the amount Gov. Bill Walker vetoed last year.
Agency operations in the House budget are reduced by $115 million UGF. Total UGF spending is $5.06 billion.
When designated general funds (DGF), like university tuition, are added, the House budget is $5.95 billion. Total funds, including federal spending, bring the budget to $9.66 billion, growth of about $32 million over FY 2017.
A provision draws $1.7 billion from the Permanent Fund earnings reserve for FY 2017, depositing the money in the Public Education Fund and making a FY 2018 education deposit unnecessary. By doing this, the House closed the FY 2018 deficit and fully-funded the budget.
“The budget is more than a book of numbers; it reflects the values of the House,” House Finance Co-chair Paul Seaton (R-Homer) said on the floor.
“This bill does not represent the values of my House. My House lives within its means,” responded House Minority Leader Charisse Millett (R-Anchorage).
House majority members highlighted the cuts to agency operations, but minority members focused on the total increase.
“Alaskans sent me down here to, first and foremost, cut our operating budget,” said Millett.
The budget passed along caucus lines, 22-17. Rep. Mark Neuman (R-Big Lake) was excused.
Two important test votes subsequently failed.
The effective date clause, which allows bills to take effect less than 90 days after being signed by the governor, only picked up Rep. Chuck Kopp (R-Anchorage), short of the two-thirds necessary to pass.
The House will get another crack at the budget after the Senate and House negotiate a deal in a budget conference committee. If the House were to fail the effective date clause at that point, it could shut down government on July 1.
House Democrats had to reluctantly rescind their move to fail the effective date clause on the FY 2016 budget after realizing the vote’s impact on operations.
Also on Monday, the House failed to reach the three-quarter threshold necessary to access the Constitutional Budget Reserve (CBR) savings account.
While the draw from the earnings reserve means tapping the CBR is unnecessary, Senate Finance Co-chair Lyman Hoffman (D-Bethel) said during a press conference that the Senate version of the operating budget will require a CBR draw. He noted that drawing from the earnings reserve in FY 2017 and FY 2018, as the House proposes, is nearly an eight-percent draw on the Permanent Fund’s total value.
Senate Finance is scheduled to consider amendments to its version of the budget on Tuesday and Wednesday. The committee also scheduled hearings on the House version, but Millett asked for reconsideration of her vote.
The move is unlikely to change the outcome on HB 57, but it does mean the budget will not be transmitted to the Senate until Wednesday at the earliest.
Hoffman’s goal is to have the budget on the Senate floor Friday or Monday.
Senate Majority Leader Peter Micciche (R-Soldotna) said that if the House doesn’t transmit its budget by that time, the Senate will move its own, rather than amending the House budget.
Senate Leaders Frustrated With Pace in House
Senate leaders were clearly frustrated Monday by delays in the House.
The Senate passed a Permanent Fund restructuring bill (SB 26) last week that draws 5.25 percent, or $2.5 billion, of the average market value (POMV) of the Fund over five years.
Micciche said SB 26 grows the Permanent Fund more than any other plan put forward this year.
“It’s sustainable, and it’s durable,” agreed Senate Finance Co-chair Anna MacKinnon (R-Eagle River).
But House Finance has not scheduled any hearings on SB 26. Instead, House Finance is spending the week considering oil tax reform (HB 111) and is preparing to move its own POMV bill (HB 115) that includes an income tax.
“We would like to see some motion and some courtesy on hearing those bills,” Micciche said, referring to SB 26. “There is critical legislation that has to pass this year or we are out of savings, out of money.”
“We believe that there’s some exposure on oil credits that we’re willing to look at,” Micciche allowed. But, he said, returning to SB 26, “Nothing else matters in this building if that bill doesn’t pass. We simply can’t fill that gap,”
“We’re willing to talk about the other policy issues once they get that bill across the finish line,” he said.
Hoffman said the House should hold with tradition and advance SB 26, since it has already passed one chamber. He added that the income tax should be removed.
MacKinnon said HB 115 is the product of a new House majority trying “political maneuvers” that she alleged are unconstitutional because bills must be confined to a single subject.
Without other legislative action, SB 26 leaves a deficit of about $800 million.
“We are taking the advice of every economist that we had in the building that told us not to do everything at once [to close the deficit],” explained Micciche.
An income tax alone will not fill the deficit. Nor will cutting potato chips in the legislative lounge, MacKinnon said, hinting at the extended House debate on more than 130 budget amendments.
The Senate has actually proposed a $15,000 increase in lounge expenses.
An $860,000 cut to legislative per diem approved on the House floor also did not receive an endorsement from Senate leaders.
“Many of them said that they wanted to lead by example,” Hoffman said of House members, “but to do what they did, I think — and I believe that they would have to try to live on $57 a day down here — is, in my view, unrealistic.”
“I’m not inclined to change the public policy regarding per diem, particularly when it was so, I would say, so massive of a reduction to their salary. What type of individual would that attract to public office?” he asked.
“What that essentially limits it to is the destitute and the wealthy,” said Micciche, answering Hoffman’s question. “The reality of it is you can’t live on $50 a day in Juneau, Alaska.”
Micciche said House members played a game of chicken and lost.
“I want families serving. I want people from all walks of life that are able to serve. Limiting it to the two extremes brings two types of people down here, and it’s just poor policy. Playing chicken on the floor is not good policy,” he emphasized. “We need people to be thoughtful and considerate. If they want to limit it to what it costs for the average to live and work in Juneau, Alaska, then that’s one thing, but there was no consideration on that daily cost. They played a game and all lost. It’s not my job to bail them out.”
While Micciche said the Senate will continue to look for budget cuts, he added, “It costs money to run government, and you can’t undercut to the point where you can’t deliver quality, critical services.”
House Minority Members Lament Growth of Government
The per diem cut was not mentioned Monday by House minority members, who criticized the budget as growing government.
“At a time of revenue shortfall, this budget doesn’t decrease the budget. I think it should,” said Rep. Dan Saddler (R-Eagle River).
“By my calculations, we are increasing the costs to Alaskans,” said Rep. David Eastman (R-Wasilla). “There are no cuts.”
Eastman said that no government programs were cut in the budget.
Similarly, Rep. Jennifer Johnston (R-Anchorage) said programs seem to have achieved Lake Wobegon status: all are above average and critical.
“How are we supposed to move forward with a growing budget when we don’t have the revenues?” asked Rep. Steve Thompson (R-Fairbanks).
Thompson was one of several minority members to point to the $4.2 billion Permanent Fund draw in the budget. That amount will cost over $300 million in investment returns, he said.
“We’re robbing from the future. We’re robbing from our children and grandchildren,” he said.
“That is a bigger policy question than should be done in a budget document,” Rep. Cathy Tilton (R-Wasilla) said of the POMV draw.
Eastman agreed, saying the $1,150 PFD cuts the distribution in half.
“I do not see how I can go back home with a budget of this magnitude… and ask my constituents for future taxes,” he said.
Eastman was one of several minority members that mentioned an income tax, seeming to confuse the budget with HB 115.
“There is no income tax in this budget,” Seaton reminded them.
Minority members seemed unconvinced.
Tilton quoted Thomas Jefferson’s First Inaugural Address: “a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.”
House Majority Tries to Avoid “Ten-Year Recession”
Tilton and Rep. Lora Reinbold (R-Eagle River) both contrasted the House budget with the FY 2006 budget.
Calling it “Denali-sized,” Reinbold said the House budget spends $1 billion more on operations than FY 2006, even when adjusted for population and inflation.
That is not true.
Real per capita agency operations spending in FY 2006 was $4.9 billion UGF, according to 2016 numbers from the Legislative Finance Division. The budget the House passed Monday spends $3.8 billion UGF on agency operations, over $1 billion less than FY 2006.
“We need to bring the budget down to match the revenues available,” Rep. Chris Birch (R-Anchorage) said, comparing the State to oil companies that are reducing expenditures.
Birch did not suggest how the State could reduce the budget to $1.6 billion, a number that would barely fund the Department of Education & Early Development alone.
House Finance Vice-chair Les Gara (D-Anchorage) pointed to research from the Institute of Social and Economic Research (ISER) that shows the state loses about 1,250 private and public sector jobs for every $100 million in budget cuts.
Gara held up ISER’s numbers against the Senate majority’s plan to cut $750 million from the budget over three years.
“If that’s your plan for Alaska, your plan for Alaska is a ten-year recession,” he said. “To me, I want to win the war on the recession.”
Gara went through a list of cuts proposed by minority members on the floor and in House Finance. One of those cuts was a five-percent cut to the education funding formula, a cut Hoffman reiterated is still coming in the Senate.
“It would have decimated public schools. I’m proud that we opposed that,” said Gara. “You set a child behind, and they’re behind for life.”
“If you’re looking for savings, find waste, but don’t target kids,” he challenged.
Gara said the House made “surgical cuts” designed to protect people, whereas the minority proposed cuts to heroin treatment, food banks, and adult public assistance.
“That is help for people who are blind, who are disabled, who are seniors and can’t afford to make ends meet,” he explained.
As Saddler predicted, Gara told the House, “The budget is a moral document.”
“Is it moral to pass on debt to the future generations?” countered Saddler.
But Gara said that if the House accepted the minority’s proposed five-percent cut to the University of Alaska, students would go Outside for their education and probably never come back. A lack of commitment to education encourages people to leave, he said.
“I want a state people want to live in, not a state people want to leave,” Gara concluded.
Saddler said the majority rejected over $300 million in savings offered by the minority before cutting off debate on Friday.
Majority members said the growing list of amendments amounted to a budget filibuster.
After the move, people asked Saddler, “Is that the nuclear option?” to which he responded, “It’s certainly the heavy artillery option.”
“There’s nobody on this floor that wants to filibuster. That is not true,” Millett told House Speaker Bryce Edgmon (D-Dillingham) Monday.
Gara said many of the minority amendments were empty cuts that would have been added back in supplementals the following year.
“The fat has been cut, and any further cuts are to the bone,” House Finance Co-chair Neal Foster (D-Nome) declared.
Monday was Day 63 of the 90-day session.