Finance Committee defends cuts amid bleak budget
The budget crisis the state of Alaska is facing is not understood by the public, state Senate leaders said April 21. The state is facing budget deficits approaching $4 billion a year with the prospect that Alaska’s main cash reserves will be drained in two years.
Community leaders are now worried about the effects of cuts being proposed this year for schools, agencies and other public institutions, but it’s nothing like what’s coming down the road, said the co-chairs of the Senate Finance Committee, Sens. Pete Kelly, R-Fairbanks, and Anna MacKinnon, R-Eagle River, in a briefing by the committee.
The Legislature was in an extension of its 90-day session as a House and Senate budget conference committee wrestled with how to resolve differences mainly in education spending. The Senate had proposed a $47.5 million cut to education.
“It’s important that people understand the magnitude of the budget problem. It’s unlike anything we’ve ever experienced before. We started talking in the 1990s about hitting a ‘fiscal cliff’ but now we’ve hit it,” Kelly said at the April 21 briefing by the Finance Committee.
“We’re now getting the point that the public does not understand the magnitude of the problem, and that’s our fault,” for not making the information available earlier, Kelly said.
MacKinnnon said she is still getting up to 100 emails a day from people asking for more money in the budget.
Sen. Lyman Hoffman, D-Bethel, underscored the current dilemma.
“We saved close to $16 billion by fiscal year 2014 but we’ll burn through that in four years,” he said.
By fiscal year 2018 the money will be gone, he said.
By the end of fiscal year 2014, $3 billion of the surplus was gone partly due to a transfer of funds to bolster state pension account.
“We’ll burn through another $4 billion in fiscal year 2015 (the current year) which leaves $9 billion,” in the two savings accounts going into fiscal year 2016 beginning July 1, Hoffman said.
If the spending and revenue picture remain status quo this gives the state enough cash to pay deficits for two more years, fiscal year 2016 and fiscal year 2017. By fiscal year 2018 the money will be gone.
Even if oil prices rise to about $70 per barrel, which is considered quite possible, it would extend the reserves for only a year, according to estimates by the Legislative Finance Division.
The two accounts are the Statutory Budget Reserve, or SBR, and the Constitutional Budget Reserve, or CBR. The SBR has essentially been drained already, which leaves the available funds in the CBR.
However, the state Constitution requires a three-quarters vote of the Legislature, in both the House and Senate, to tap the CBR. This puts House Minority Democrats in the driver’s seat in the end-of-session budget negotiations because the Republican-led Majority in the House, which includes a handful of Democrats, still isn’t large enough to get the three-quarters vote.
However, there are additional liquid reserves available including several billion dollars in the Permanent Fund’s earnings reserve account. The Permanent Fund itself it not available for spending but its accumulated earnings can be appropriated.
There is also about $1 billion in an endowment created to support Power Cost Assistance payments in small communities around the state where electricity prices would otherwise be very high.
The only experience the state has that is close to what it faces now was in the mid-1980s when oil prices also collapsed and Gov. Bill Sheffield had to sharply cut spending and impound funds to keep the state operating. There were no reserve funds then.
A gradual recovery of oil prices eventually stabilized the situation but this time is different because oil production is a fourth of what it was in 1985.
Kelly and other members of the Senate Finance Committee defended the Senate-passed budget in the April 21 briefing.
“This budget ensures we don’t fall off the fiscal cliff. It preserves jobs and school funds, and some measure of what Alaska depends on for public service,” Kelly said.
He gave Gov. Bill Walker credit for getting the ball rolling with a $132 million reduction in state operations spending.
“He stepped up to the plate, but it wasn’t enough,” Kelly said.
The House made further reductions to about $350 million when it passed the operating budget to the Senate, Kelly said.
“All these reductions were wiped out when the spring revenue forecast came in the night before we were to close our (Senate) operating budget, estimating an additional $400 million drop in revenues,” he said.
MacKinnon, who is in charge of the capital budget, moved to offset some of this in further reductions in the capital budget.
The total budget package, as it left the Senate, is $850 million down from current fiscal year 2015 spending of about $6.1 billion, but about half of this reduction is in the capital budget, which is a one-year cut that cannot be done again from the bare bones fiscal year 2016 capital budget.
Despite the budget wrangle, several bills are now passed by the House and Senate and on their way to the governor. They include HB 158, the fuel tax surcharge to replenish funds in the state spill response fund; HB 146, which gives municipalities new tools to exempt property from tax when land is subdivided (an aid to housing development); SB 46, allowing regional health facilities to work with the Alaska Municipal Bond Band in financing new facilities; SB 59, a repeal of the state film tax incentive program.
One bill held hostage to the end-of-session negotiations in the Senate, for reasons that were unclear, is HB 105, the Interior Energy Project.
The bill allows gas to be shipped to the project, which is state-sponsored, from Southcentral Alaska. Current law stipulates that it must come from the North Slope.
Also, the capital budget, SB 26, is still on the House floor. Stripped down as it is, this will be part of the final package.