Week 8 in Juneau: House moves budget, Senate passes Medicaid reform
Legislators in the state House signaled what they hope to achieve — a state spending reduction of several hundred million dollars — in their first formal budget actions Thursday and Friday on the fiscal year 2017 state budget.
But just how much would be cut in the House budget is still a moving target, said David Teal, director of the Legislative Finance Division, a support agency to the Legislature.
According to figures compiled by the division and posted on its website the operating budget passed by the state House in the early morning hours of Friday trimmed state agency budgets by almost $300 million in unrestricted general fund spending.
That number grows, to as much as $639 million or much higher by some estimates, when the totals of other general fund spending is included such as debt service on state bonds, pension payments and refunds paid out under the state oil and gas exploration and development tax credit incentive program.
“The fact is that no one really knows what the reduction is,” Teal said, mainly because of a flurry of activity in the House Finance Committee that included switching of funding source for several programs.
It will take time to get the numbers sorted out. The House passed its budget by a 24-14 vote at about 3 a.m. Friday morning.
The tax credit payments are the biggest unknown, Teal said, because a bill restructuring the program is still in a House committee. Gov. Bill Walker wants to limit cash payouts to explorers to $100 million per year, but if the bill, House Bill 247, doesn’t pass, the state could accumulate new liabilities of $500 million or so. Walker may veto some of that like he did last year.
Meanwhile, an operating budget is also being developed in the Senate, but it is not yet passed.
It’s typical for the budgets approved by the House and Senate to be changed before legislators leave Juneau. In a briefing Thursday, Senate Finance co-chair Sen. Pete Kelly, R-Fairbanks, said the Senate’s target, at the end of the day, is a $500 million net reduction in unrestricted general fund spending from the current year.
The Senate’s action to pass its budget is expected this week, and modifications to the House version are likely, Kelly said.
As soon as the Senate passes its budget, a House-Senate conference committee will be appointed to iron out differences between the two plans but leaders in both bodies said the plan is to leave the budgets in conference for the next month while lawmakers turn their attention to revenue measures.
At this point some method of using Permanent Fund earnings is the favored choice to offset depleted state oil and gas income, but decisions on which of several plans put forth for using the earnings have not been made.
It’s thought that passage of any of several tax measures proposed by Gov. Bill Walker is unlikely this year, although an increase in the 8-cents per gallon gasoline tax could be enacted.
If the Legislature achieves a $500 million reduction in spending this session it would still leave a gaping $2.5 billion to $3 billion-plus deficit for fiscal year 2017, and a need to draw down savings by that amount.
The budget figures so far reflect deep cuts in many state agencies and the University of Alaska, but the numbers are far from final.
One area of contention last year appears to be absent this year so far. That is education spending to support “K-12” elementary and high schools. So far there is no significant talk of reducing the Base Student Allocation, or BSA, a formula that sets out how state financial support for school districts is allocated.
There is even an increase in the BSA for fiscal 2017 that was authorized in a bill passed by lawmakers two years ago, and there hasn’t yet been talk of halting that.
This could be part of a plan by House and Senate Republican leaders to defuse school funding as the kind of line-in-the-sand issue that led to an impasse last spring with House Democrats, causing them to withhold votes for a withdrawal of funds from state savings and effectively extending the 2015 session.
But if K-12 education is exempted from cuts this year, other education, such as the University of Alaska, is not. In its budget the House proposed a deep cut of $50 million, but the Senate is talking of a $25 million cut.
All state support for pre-kindergarten programs has also been eliminated from both the House and Senate operating budgets. With this having happened in both budgets it’s very unlikely money will be added back in before the Legislature adjourns.
One spending program the Legislature appears to be loathe to touch, however, is the Permanent Fund Dividend. In his budget Gov. Bill Walker had reduced money for the PFD this year to $700 million, or enough for a $1,000 dividend check.
However, the House Finance Committee added $700 million to this to bring the total to $1.4 billion, enough for an approximate $2,000 PFD payment.
Walker had reduced the appropriation under an assumption that his package of fiscal reform bills, which included a new mechanism for paying the dividend, would pass. That’s considered highly unlikely now, so the House Finance Committee changed the appropriation amount back to $1.4 billion.
However, if the $700 million had been left in the budget and not increased it still would have resulted in a lower payout of $1,000 in a PFD check regardless of whether the fiscal package were enacted.
The irony of the state spending money on dividends while cutting funds for basic services and balking at structural reform in the state budget is not lost on Wall Street credit rating agencies, said Rep. Mike Hawker, R-Anchorage, who was in Anchorage on Friday for medical treatment.
Several major rating agencies have reduced the state’s credit worthiness in recent months.
“It won’t be enough to just appropriate money from reserves, another money grab. They want to see systemic change,” Hawker said in comments to a Commonwealth North group in Anchorage.
Aside from the budget issue one of the more important issues being considered this year is major revamp of the state’s Medicaid program along with other changes that could have wide-ranging effects in the state’s health care industry.
The vehicle for this is Senate Bill 74, whose prime sponsor is Kelly, and which has been reported out of the Senate Finance Committee and was passed by the Senate unanimously on Friday.
There is a lot of Senate horsepower lined up behind the bill. Cosponsors include five other senators including the other Finance co-chair, Sen. Anna MacKinnon, R-Eagle River; three other Finance members, Sen. Peter Micciche, R-Kenai; Sen. Click Bishop, R-Fairbanks; and Sen. Lyman Hoffman, D-Bethel, as well as Sen. Cathy Giessel, R-Anchorage, who is a health care professional.
The bill makes wide-ranging changes in Medicaid, the health care program for lower-income Alaskans that is administered by the state and about half paid for by the federal government.
A major objective is to toughen state laws and penalties for Medicaid fraud, handing new tools to anti-fraud investigators in the Department of Health and Social Services and the Attorney General’s office. One of the new tools would be a state “false claims” act that would empower state officials to pursue health providers who make false claims for Medicaid payments.
Surprisingly, Alaska has no such law now, which requires the state to seek repayment or to assess penalties by other, more cumbersome, means.
Among other things it tackles overuse of hospital Emergency Rooms by Medicaid patients with a required use of primary care case management for individuals identified as ER “over-users.”
The bill also sets up a partnership between the state and hospitals for an electronic information system between hospital emergency rooms so physicians will be able to track patients’ history in other ER rooms.
In a move to combat the epidemic of abuse of pain-killing drugs, which has led to heroin addition, physicians will be required to consult a database of painkiller drug prescriptions to individuals before prescribing drugs.
Hospital emergency rooms and physicians within hospitals are exempt from this.
In what could be a major change that will affect the entire Alaska health care industry, the bill would allow telemedicine for the first time so that Alaskans can consult out-of-state physicians and medical providers via the Internet or videoconference, and out-of-state physicians would be able to prescribe medicines.
Out-of-state physicians consulting with Alaskans will still have to be licensed to practice in Alaska, however, and health care firms providing telemedicine services will have to register with the state under the bill.
In other measures, SB 74 also authorizes a study of a possible merger of many separate health care and insurance plans that are paid for directly, and even indirectly, by the state, along with studies of how the state’s bulk purchasing power for services and drugs could be leveraged to lower costs or improve efficiencies.
This idea, also from Kelly, has been proposed before in different forms and it has been opposed. Two years ago Sen. Mike Dunleavy, R-Wasilla, proposed merging of school district and state health plans to enlarge the pool of insured individuals, gaining efficiencies.
The bill was strongly opposed by most school districts and teachers’ unions who argued there would be less flexibility for the insured under a large, combined health plan.
This time around the influential public employee unions, who operate health plans for their members, are likely to resist a consolidation.
A similar bill on Medicaid reform, House Bill 227, is pending in the House Health and Social Services Committee, sponsored by Rep. Paul Seaton, R-Homer, who is also chairman of that committee.
It deals with many of the same issues as does SB 74, particularly Medicaid fraud. Seaton’s bill was reported out of the House committee March 9 and is now in the House Finance Committee.
Tim Bradner is a correspondent for the Journal. He can be reached at [email protected].