Legislature strips funds for gasline

After a session spent dueling with Gov. Bill Walker over his plan to spend $85 million in state funds to increase the size of a state-led natural gas pipeline, and Walker’s veto of a bill stopping him from spending the money, the Legislature may have gotten the final word.

In their final budget action before adjourning April 27, lawmakers took the money away from the governor.

The House-Senate conference committee report on the operating budget, which resolved differences in the House and Senate-passed budgets and stipulated the sources of funds, took $157 million in unspent funds from the Alaska Gasline Development Corp., the entity that would lead the state-backed pipeline.

In a twist, however, the committee gave the money to schools, through an appropriation to the Public Education Fund. Legislative budget analysts say the governor can certainty “line item veto” the action, but if he does so it subtracts $157 million from money available for school districts.

Walker’s fight with legislative leaders over the funding for the pipeline dominated the final weeks of the session. The squabble doesn’t affect the state’s payments for its share of the large Alaska LNG Project, for which preliminary engineering is underway, but involved unspent money in AGDC’s budget that Walker wants to increase the size of a separate, smaller state-led gas pipeline intended to serve Alaska communities in case the project falters.

In a budget bill submitted to the special session of the Legislature that convened April 28, Walker asked for some of the AGDC funds to be restored.

Whether that will happen is problematic given the state’s projected deficit this year of $3.9 billion and the ill feelings between the governor and House Speaker Mike Chenault, R-Nikiski, and Senate President Kevin Meyer, R-Anchorage, over the issue.

Meanwhile, what legislators and the governor are now grappling with is how to complete the budget funding for the state fiscal year 2016, which begins July 1.

An impasse over funding for education and other issues led to the Democratic minority in the state House refusing to vote for a withdrawal of funds in the state Constitutional Budget Reserve, or CBR, to completely fund the fiscal year 2016 budget.

About $8.5 billion is currently in the CBR fund.

The state Constitution requires a three-quarters vote of both the House and Senate to make the withdrawal. The Republican majority in the Senate holds enough seats in the 20-member body to reach the required three-fourths, and the Senate voted to approve he withdrawal when it passed the state operating budget, House Bill 72.

However, in the House the Democratic minority holds enough votes to block the withdrawal (some Democrats in the House, from rural areas, are aligned with the majority), and the Republican-controlled majority couldn’t muster the 30 votes needed to get the money.

House Democrats had a list of demands in addition to more school funds including passage of Medicaid expansion and approval of pay raises for state employees.

When a deadlock developed, the House and Senate majorities decided to circumvent the House Democrats by taking funds from other accounts, like the unspent AGDC money, where a simple majority vote could approve the action.

Legislators had to first fund the deficit for the current state fiscal year 2015, which ends June 30. With oil revenues for the year now estimated at about $2.2 billion, the 2015 deficit is now estimated by the Department of Revenue at $3.93 billion.

About $2.8 billion of that can be covered with money taken from the Strategic Budget Reserve, another cash account where only a majority vote is required for a withdrawal. This essentially drains that account, leaving only the money in the CBR.

That still left about $1 billion in the 2015 deficit, so the House and Senate majorities opted to cancel an appropriation of that amount typically made to the Public Education Fund, an account that holds money for state payments to school districts in the following year.

This won’t immediately affect schools because money now in the education account, appropriated last year, will go out to school districts as scheduled. But the fund won’t be replenished, which means the Legislature will have to make a $1 billion-plus appropriation next year for the fiscal year 2017 school funding cycle.

As the budget conference committee members scrounged for sources of money to tap, they considering taking money from the Power Cost Equalization Fund, an endowment of about $980 million that finances subsidies for residential power costs in small communities around the state, and from the Alaska Higher Education Investment Fund, which funds college scholarships and holds about $460 million.

In the end the conference committee left those funds alone, however.

As a last-ditch reserve the Legislature could also appropriate money from the Earnings Reserve account of the Permanent Fund, which currently has a balance of about $6 billion. Although the principle of the Permanent Fund cannot legally be spent, its annual earnings can be appropriated, and these have now accumulated in the Earnings Reserve account.

Tapping these funds would be politically sensitive, however, and that source was not considered.

Updated: 
11/20/2016 - 8:48am

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