Gov. Mike Dunleavy, left, reads highlights from his revised state budget proposal for the 2024 fiscal year as Department of Transportation and Public Facilities Commissioner Ryan Anderson waits to present revisions within his department. Among the most significant revisions are required matching funds for federal allocations to the Alaska Marine Highway system. (Mark Sabbatini / Juneau Empire)

Gov. Mike Dunleavy, left, reads highlights from his revised state budget proposal for the 2024 fiscal year as Department of Transportation and Public Facilities Commissioner Ryan Anderson waits to present revisions within his department. Among the most significant revisions are required matching funds for federal allocations to the Alaska Marine Highway system. (Mark Sabbatini / Juneau Empire)

New spending plan calls for ‘toll’ funds to shore up ferries

It adds temporary food stamp workers, attempts novel way to secure federal funds for AMHS upgrades.

Funding to remedy a critical shortage of food stamp employees and public defenders, plus a first-ever attempt by the state to use federal “toll” funds to match federal grants for large-scale upgrades to the Alaska Marine Highway System, were part of a revised state budget for next year introduced Wednesday by Gov. Mike Dunleavy.

The revised budget also seeks additional funding for a variety of programs and capital projects including Medicaid, energy grants, tourism marketing and fire suppression. A statement from the governor’s office states the revisions add $117 million to what’s now a $7.37 billion undesignated general fund budget (about half the total budget when federal and other funds are added).

Among the most notable revisions is $9 million for the state Division of Public Assistance to increase staffing to help address a months-long backlog in processing food stamp, Medicaid and other applications. There is also $54 million in capital budget funds to replace what division officials call a badly outdated computer mainframe system that is partially responsible for the backlog.

The extra staff funding will provide 30 additional temporary workers to supplement new permanent staff who have been hired and trained in recent months, said Department of Health Commissioner Heidi Hedberg. She has stated at least some of those staff will be privately contracted due to their technical expertise on old equipment and doesn’t see that being a long-term need due to the new mainframe system.

“We know with the modernization of our IT systems and additional support of temporary staff we’re always going to continue to reevaluate, but we believe our permanent positions are sufficient,” she said.

In another statewide workforce crisis, Dunleavy’s amended budget includes $8.3 million across two fiscal years to increase hourly pay and case caps for contract attorneys, giving them the same 20% raise to contract attorneys and state attorneys. Offices in Nome and Bethel have stated in recent weeks they are not accepting new felony cases due to staffing shortages.

One of the biggest budget items for Southeast Alaska — involving both federal and state funds — is the Alaska Marine Highway System. The dominant portion of current funds are from the federal infrastructure and omnibus spending bills, which are intended to make major upgrades to aging vessels and infrastructure, but often require the state to provide matching funds.

A new attempt to use what are known as federal “toll” funds rather than state funds to meet the matching requirements was announced during the budget press conference by Department of Transportation and Public Facilities Commissioner Ryan Anderson. A new $57.8 million electric ferry, for instance, seeks to use $11.5 million in “tolls” as matching funds.

“This toll credit match is really a program that the Federal Highway Administration incentivizes states to take the earnings, the revenues that they receive from tolls from things like the Maine Highway System — this could also be used on highways in the Lower 48 — to invest them back into the system.”

When asked if the federal government has indicated using such tolls as matching funds is legal, Anderson said the state is in discussions with FHA officials and “this is a tool available to other states.”

Another vessel-related addition to the budget affecting Southeast Alaska is $7.5 million to replace an 84-foot-long Department of Public Safety patrol vessel that has a 30-years-old hull and “repairs would be cost-prohibitive compared with the cost of replacing the vessel completely,” according to the capital projects summary. The current vessel, Enforcer, often operates as a “mobile command center” for criminal and emergency matters in smaller communities, such as a landslide in Haines in 2020.

A provision that could significantly alter development projects is spending nearly $5 million to further the state taking over some control from the federal government in issuing permits related to the Clean Water Act. State Department of Environmental Conservation officials recommended the takeover of what’s known as the “Section 404 program” after a study during the past year, with implementation envisioned during the next two years,

“State assumption of the Section 404 program will provide a streamlined permitting procedure, greater certainty to the regulated community, conservation of resources of both the applicant and regulator, and greater control over the development of its natural resources while complying with federal law,” a department analysis states. “However, the process for Section 404 program assumption is complex and costly, the process for determining how to assume the program is equally complex and costly, and the limits on the scope of waters for which a state may assume permitting responsibility may reduce the attractiveness and effectiveness of a state-run Section 404 program.”

The revisions raised the governor’s projected deficit for next year to nearly $400 million, up from about $250 million in his December budget, with some legislative leaders projecting the total could reach or exceed $500 million when supplemental and other spending is factored in. The shortfall will have to be covered by the nearly $2.3 billion Constitutional Reserve, which requires a three-fourth vote of the legislature and thus concessions to members disagreeing with the governor’s spending plan.

Among the key disagreements between the governor and some legislative coalitions are increasing per-student education spending that’s flat in the governor’s budget, reinstating pension benefits for state employees and spending nearly $2.5 billion to “fully fund” Permanent Fund dividends of about $3,900 — especially if funding the PFD means deficit spending or flat-funding education.

Dunleavy, when asked about the projected deficit, said he’s comfortable relying on reserve funds for the coming year if his proposals to enter the carbon offsets markets are enacted.

“We’re hoping that the Legislature moves quickly on our carbon-enabling bills so we can see what the interest is worldwide,” he said. “We understand that even if the bill is passed and the interest is there it will probably take a year, two years to see that funding coming in, that new revenue stream. We do have money in the Constitutional Budget Reserve to take care of some of those issues.”

The governor also emphasized “when the budget comes back to me it will probably look very different because of amendments, at which point I’ll have decisions to make” with line-item vetoes.

“It’s hard to tell what this budget’s going to look like,” he said. “If we get the carbon stuff going, we believe that revenue stream can address a lot of issues going forward.”

There’s also plenty of intriguing — and pressing — small individual items in the revised budget.

Spending $376,000 to remodel the Division of Motor Vehicles office at the University of Alaska Anchorage office is included because “DMV has had many complaints in the two years it has been in the current location centered around the lack of restroom facilities, which has led to customers relieving themselves in the DMV lobby, the hallways and in the parking lot,” according to the list detailing specific capital project requests.

Other new items in the revised budget, according to the governor’s office:

— $10 million ($5 million each) to Alaska Seafood Marketing Institute and Alaska Travel Industry Association

— $7.5 million for Alaska Energy Authority Renewable Energy Grants

— $8 million for wildfire suppression

— $24.4 million for Medicaid rates and match

— $2.8 million for 10 more Village Public Safety Officers and housing allowances

• Contact Mark Sabbatini at mark.sabbatini@juneauempire.com

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