Fights over taxes, spending, revenue

  • The conference committee on the state operating budget meets last April 18 in Juneau on the last scheduled day of the legislative session. The Legislature went into overtime on the regular session and into two special sessions before finally agreeing on a budget that at the time was $2.7 billion in the red. As oil prices have continued to slide the deficit is now estimated to be $3.5 billion for the current fiscal year. Photo/Becky Bohrer/AP

There seems little doubt that the 2016 state legislative session will be pretty ugly.

The money situation is getting worse and there’s no reason to believe that the House minority of the Independent Democrat caucus won’t again use its leverage to extract budget concessions from the Republican-controlled House and Senate Majority.

A replay of last year’s extended session and back-to-back special sessions, which lasted into June, may occur in 2016. Without the House minority, the Majority doesn’t have the necessary three-quarters vote of both the House and Senate to withdraw money from the Constitutional Budget Reserve.

Last year the House Democrats played their cards to protect education funding and state employee pay raises. 

Other issues will be mixed into the pot for 2016. One is possible legislation needed on a long-standing effort to get coordinated, and more efficient, dispatching of electric power through the Southcentral/Interior Alaska “Railbelt” electric grid.

The electrical transmission system needs an upgrading and new investment. State dollars are scarce, but private investors are now interested. However, changes in the regulatory structure, which may need legislation, are needed to attract the private investment.

Prior year efforts at restructuring the power grid have run aground on the competing interests of the independent electric utilities in the Railbelt.

Also, health insurance companies are expected to raise a proposal for “resinsurance” to share the costs of supporting individual and family health insurance, the costs of which have become unaffordable for many across all health insurance sold. Premiums for Premera and Moda, the only two companies offering policies in the state, will increase by nearly 40 percent next year.

A similar plan has worked successfully for several years in sharing costs of a high-risk pool, to provide insurance for Alaskans with serious health problems. The new idea is to extend this to individual and family plans.

Complicating the 2016 session, however, will be the strains between Gov. Bill Walker and legislative leaders. At the end of a special session in November, Walker pledged to do better in his relations with the Legislature, but House and Senate leaders are taking a wait-and-see attitude on this.

What may improve things in the 2016 regular session is that the focus will be mostly on budget issues, and state budget director Pat Pitney is well regarded on the second floor (the Legislature) of the Capitol building.

Natural gas issues, which were the source of most of the friction in 2015, will come later, in a likely special session following the regular session. House Speaker Mike Chenault and Senate President Kevin Meyer scrapped with Walker for much of last year’s sessions over the governor’s new direction for the Alaska LNG Project, the planning for which is now underway.

Meanwhile, the revenue situation is getting worse, which puts more pressure on legislators and the administration. In a briefing to Commonwealth North, a business and public policy group, budget director Pitney said the current fiscal year 2016 budget deficit has ballooned from a $2.7 billion shortfall estimated last spring to an estimated $3.5 billion, based on the annual state revenue forecast issued in early December.

The deficit has increased because oil prices have continued to drop. The spring revenue update, issued last April, assumed an average price for North Slope crude oil of $64 per barrel. The December forecast lowered that to $49 per barrel.

Prices for North Slope oil are continuing to fall, however, reaching $35 per barrel last week. For the first six months of the fiscal year from July through December, the average is already less than the $49 per barrel assumed in the December forecast, according to Department of Revenue data.

What this means is that the state’s cash reserves will be drained more quickly than thought, Pitney told Commonwealth North. The main cash reserve, the Constitutional Budget Reserve, will be depleted by 2018, she said.

There are other cash accounts, such as the Permanent Fund’s Earnings Reserve, but Walker is counting on that fund staying intact to help capitalize a new state endowment that could stabilize the state budget.

Legislators will spend a lot of time in the 2016 session debating what to do about this. The governor has put forward a fiscal plan that involves a restructuring of the way income is managed from the state’s Permanent Fund, and to make some of the earnings available to help support the state budget. Walker has also proposed an array of new taxes, including a personal income tax, and the restructuring of the state’s oil and gas tax credit program.

At this point Republican legislative leaders say more spending cuts are needed, and deeper ones than the governor proposed, before any new revenue source can be considered.

Business leaders, like GCI President and CEO Ron Duncan, say the Legislature must make some step toward new revenues in 2016 even if not the whole package Walker proposes, or else business leaders will lose confidence and slow new investment in the state.

The credit ratings agency Standard and Poor’s has also written that the state faces a rapid downgrade from its top-notch AAA level if it does not adopt a fiscal plan in this session that puts the state on a sustainable path going forward.

Updated: 
12/06/2016 - 4:21pm

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