Legislators head back to work in Juneau
State legislators gavel back into session Jan. 17, starting a 90-day clock that ends April 15.
Taxes are at the top of the agenda in the state capitol as Gov. Sean Parnell, oil and gas companies and much of the state’s business community push anew for passage of House Bill 110, the governor’s bill that would encourage new investment by adjusting the state petroleum production tax.
House Speaker Mike Chenault, R-Nikiski, told the Resource Development Council Jan. 5 that he expects some form of oil tax change to be made in 2012, but that other issues, like coastal zone management, also will surface.
Parnell’s HB 110, now in the state Senate, is getting some pushback, however. Speaking for opponents to the bill, Rep. Les Gara, D-Anchorage, told the Anchorage Chamber of Commerce Jan. 10 the bill lacks guarantees that investments will really be made and is a “giveaway” of revenues to the industry.
“The governor’s plan is corporate welfare. Rather than tell companies they can take his $1.8 billion in tax reductions out of state, which his plan allows, we should allow tax credits only if companies spend in Alaska on new exploration and new production,” Gara said. He has a bill, HB 231, that includes those provisions.
Valdez Mayor Dave Cobb said he, too, is worried about the effects of the oil tax change in reducing revenues when there are still needs for schools, harbors and other basic facilities across the state.
Oil tax legislation will take up lot of legislators’ time this spring but the state budget has the highest priority, since it is a mandated responsibility for the Legislature.
Attention on the budget really focuses on the capital budget bill, where appropriations are made for construction and special projects.
Parnell has proposed a lean capital budget, spending $984 million in state dollars, but the governor acknowledges that legislators will add to this. The current year capital budget spends $1.65 billion in state funds.
Concerns on operating budget
The operating budget is more worrisome in the long term because it keeps growing at annual increments of several hundred million dollars. The growth is hard to control because most of the operating increase is tied to programs like local school funding, where increases are tied to formulas, and Medicaid, where the big cost driver is the underlying inflation in medical costs.
Including all state funds, general and other state money, the operating budget will grow $278 million between the current fiscal year 2012 and proposed fiscal 2013, according to projections prepared by the state Office of Management and Budget. Much of the growth is in the formula programs like Medicaid, which are difficult to control. Next year Medicaid state-paid costs alone will go up an estimated $131 million.
Legislators worry about continued growth of the budget and the decline in oil production.
“Assuming a 6 percent decline in oil production and a 7 percent increase in the budgets, in four years we will need an oil price of roughly $142 per barrel to balance our budgets. That’s a budget shortfall of 30 percent at today’s prices. Who and what are we going to cut?” Rep. Eric Feige, R-Chickaloon, said Jan. 5 in a presentation to the Resource Development Council in Anchorage.
For now, the state is in a comfortable financial position. If spending remains at the level recommended in the governor’s budget, and assuming oil prices and revenues, remain at their expected levels, a $3.7 billion surplus would be added to state reserves at the end of fiscal 2013, or June 30, 2013. The state’s cash reserves are now at about $13 billion, not including the permanent fund.
“We have approximately $13 billion in reserves as of Dec. 15. That includes about $10.3 billion in the state’s Constitutional Budget Reserve and $2.7 billion in the Statutory Budget Reserve,” a second reserve account, state Budget Director Karen Rehfeld said in an e-mail.
However, the point Feige and other legislators make is that with the state more than 90 percent dependent on oil for its revenues, unless there is new oil production, the state could eat through that surplus in just a few years given the current budget trends.
Coastal management may be back
There are a lot of other issues on the table for the Legislature but most of them will be left there when the lawmakers adjourn April 15, and some urgent matter will simply be crowded out by the oil tax debate.
One that might not be crowded out is coastal zone management, which is being pushed strongly by a coalition of coastal municipalities led by Juneau Mayor Bruce Botelho. Amid bitter controversy in the 2011 session, the state coastal management program was not extended, making Alaska the only U.S. state with a shoreline that doesn’t have a coastal program.
Botelho and several other municipal officials organized a ballot initiative to put the question of restoring the coastal management program on the 2012 election ballot. If the initiative organizers succeed in getting just over 25,000 qualified signatures on petitions by Jan. 17, the question will be on the ballot.
That is unless the Legislature passes a new law resurrecting the program in a form similar to that proposed by the initiative, but figuring out what is “similar” will open up a lot of political wounds.
The initiative essentially recreates an early coastal management program that allows coastal communities to have a lot of influence on state and federal permits in their areas, and similar to the structure before former Gov. Frank Murkowski reorganized it and brought the program under stronger state control.
In recent years rural legislators tried to resurrect a version of the earlier program but the effort foundered when opposed by the state administration and urban legislators who argued coastal communities shouldn’t have a “veto” over projects of importance to the entire state. There was another effort in the 2011 legislative session, but it was ultimately unsuccessful.
Most industries have legislative goals
Most business and community groups have legislative goals for 2012. The state’s construction industry, with the larger contractors represented by the Associated General Contractors of Alaska, is working to support a strong state capital budget and one focused on infrastructure to help diversify the economy, according to John McKinnon, its executive director.
There will also be more targeted issues of concern to contractors on which AGC will work, McKinnon said.
The state’s health care industry, also working through trade associations, is concerned with maintaining a stable medical professional workforce and maintaining funding for state health care programs like Medicaid, said Karen Perdue, president of the Alaska State Hospital and Nursing Home Association.
Perdue is also a former state health and social services commissioner.
This year health care groups are supporting a bill to have the state give financial assistance to physicians and other medical professionals in short supply in Alaska, to encourage them to come to Alaska to work, Perdue said. House Bill 78, which established that program, was introduced last year and is now in the House Finance Committee.
Health care providers also support state funds for Medicaid that includes a range of services, and support pilot programs by the state Department of Health and Social Services that are testing ways to reduce costs in Medicaid.
Organized labor has legislative goals, a perennial one being an effort to index the state minimum wage to inflation rather than relying on the Legislature pass a bill to raise it every few years, as the current Alaska law provides. Most states index their minimum wage levels to be adjusted automatically with inflation. The result is that Alaska’s minimum wage usually lags behind that of many states.
Alaska business groups typically don’t care a lot about the minimum wage, but the idea of automatically indexing wage levels hits a sour note with some lawmakers, so the proposal has hit opposition in recent years.
Capital budget and infrastructure
In the capital budget, the governor’s emphasis this year is on major infrastructure.
Parnell proposes continued funding for several “road to resources” projects including $10 million in continued money for a road to Umiat, on the North Slope, and $4.5 million for the Ambler mining district road. There is a new project, $10 million for a road extension of the Elliot Highway to near Tanana, the first section of a road to Nome.
There is also a $350 million general obligation bond package for port projects is also proposed, with (so far) ports in Bristol Bay, Emmonak, Ketchikan and Seward included.
The budget includes funding of the complete rural school major maintenance list at $24 million, and two new rural schools at $61 million. Also included is $2.7 million to fund continued Rare Earth Element geological work; $60 million in reimbursement to TransCanada Corp. and ExxonMobil under the state Alaska Gasline Inducement Act contract, and $21 million to the Alaska Gas Development Corp. for more work on the 24-inch bullet gas line planning.
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