Legislators avert shutdown, but deficit remains

Alaska lawmakers have approved a compromise to avert a July 1 shutdown of state government, but the deal fails to address structural problems still facing the Alaska budget.

On Tuesday, the House and Senate each voted for an operating budget that keeps state services in motion through June 30, 2017. The Senate vote, 17-3, came about 2:30 p.m. The House vote, 34-5, came at 4:04 p.m.

The House approved a bare-bones capital construction budget about 3 p.m. and the Senate followed suit at 4 p.m.

Each vote followed months of contentious negotiations that culminated at 10 p.m. Monday night when a committee approved a compromise and sent it to each half of the Legislature.

“Everybody wishes it happened 40 days ago, but the calmer heads in the Legislature prevailed, I think,” said Rep. Les Gara, D-Anchorage and a member of the committee that drafted the compromise.

“I still don’t feel good about being here. I wish we weren’t here past 90 days … but we are in a time that Alaska’s never been in. We’ve never had the revenue shortfall that we have,” said Speaker of the House Mike Chenault, R-Nikiski, after Tuesday’s vote.

In December, Gov. Bill Walker called for the passage of a complete fiscal plan to erase a $4 billion deficit caused by plunging oil prices. Walker’s goal, he said, was to eliminate uncertainty about how the state will pay for operations after 2019. Without a solution or an unexpected surge in oil prices, the state could run out of savings as early as that year, something that would end the Alaska Permanent Fund Dividend program and force massive tax increases.

Lawmakers are expected to continue work on a long-term solution to the deficit, but it is unclear whether Walker will accept a budget without that solution.

Walker still holds veto power over the budget.

The plan passed by the Legislature calls for spending about $4.368 billion on operating expenses and capital construction projects. Roughly $3.2 billion of that figure would be funded from the state’s Constitutional Budget Reserve savings account.

If the Legislature passes additional taxes in the remaining days of the special session, that CBR draw will be reduced.

“If we pass any of these revenue bills that we have, it will reduce the draw on the CBR proportionally,” said Rep. Steve Thompson, R-Fairbanks and a House Finance co-chairman.

The figures presented Wednesday represent state “unrestricted general fund” (UGF) dollars, money that doesn’t come from earmarked funds or the federal government.

In the current fiscal year, the state is spending about $5.1 billion in UGF for operations. The governor proposed reducing that to about $4.5 billion, and lawmakers went still farther. The current operations budget is under $4.3 billion; only about $100 million is earmarked for capital construction projects.

The budget is down nearly $800 million from last year, but it could have been cut even more without the intervention of the Democratic-led House majority.

Because using the Constitutional Budget Reserve requires three-quarters of the House and three-quarters of the Senate, the Democratic-led House minority had to approve any cuts.

Was there a sticking point?

“There was about four billion of them,” said Rep. Mark Neuman, R-Big Lake and co-chairman of the House Finance Committee.

“We knew it was going to be tough last year, and everybody said it was going to be tougher this year, and it was,” he said.

To get the support of the minority, Republican lawmakers had to reverse some of their planned cuts. The conference committee in charge of the compromise budget restored a scheduled $50 increase in the amount the state pays school districts per student. It restored $35 million in funding for the University of Alaska, leaving the university with almost the same figure the governor had requested — a $15 million drop from the current year.

The conference committee also restored funding for the Parents as Teachers program, pre-kindergarten, and Best Beginnings. Money was added back for senior benefits and disability benefits, as well as foster care programs.

The City and Borough of Juneau will benefit, too. It will receive about $4.8 million in state cruise ship head tax money that the state had been planning to keep for itself. Juneau is among the top seven cruise ship ports of call that share a pot of money.

“We didn’t get some of the cuts we would have liked to see, but the folks on the other side of the aisle didn’t get a lot of the things they wanted to see,” Gara said.

One of the cuts the Democratic minority wanted was to the state subsidy of oil and gas drilling. That program remains unchanged, and Tuesday’s vote shifts some $430 million left over from the current fiscal year into the fund that pays for the subsidy.

“While there are a lot of good things in this budget, we’ve also added direct cash payments to the oil and gas industry that don’t bring jobs back for our state employees,” said Rep. Sam Kito III, D-Juneau.

Kito voted against the operating budget compromise. His counterpart, Rep. Cathy Muñoz, R-Juneau, voted for the compromise.

Speaking after the vote, Muñoz said she was happy with the way the compromise restored money to education programs. Kito said he was unhappy that those restorations didn’t go far enough.

With regard to drilling subsidies, Muñoz said House Bill 247 — which contains reforms to the subsidy — is still in play.

Tuesday’s agreement came just hours before thousands of state employees were to receive contractually mandated notices warning them of layoffs should the government shut down. Several legislators said that impending deadline drove the timing of the deal.

“You can’t avoid the fact that we did have notices going out on layoffs. That has played a factor in this,” said Sen. Pete Kelly, R-Fairbanks and co-chairman of the Senate Finance Committee.

Sen. Lyman Hoffman, D-Bethel and a member of the conference committee, said Monday that even though the Legislature has reached a compromise for this year’s budget, its work is not over.

“I would impress upon the people of Alaska that there is work to be done and the major portion of our deficit continues even with the action that we are taking here today,” he said.

Sen. Anna MacKinnon, R-Eagle River and co-chairwoman of the Senate Finance Committee, agreed with his statement and said Monday that she believes lawmakers will stay in Juneau until they vote on a long-term fiscal plan.

“I am going to be here tomorrow. We are going to take up the governor’s bills, and we are going to advance them to the floor,” she said.

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