Gridlock stiffens over budget

It seems inconceivable that a state government endowed with billions of dollars in liquid assets must develop contingency plans for state agencies running out of cash shortly after the new fiscal year begins July 1.

But that is just what the departments of Revenue and Administration are doing, just in case the political gridlock over funding the state’s fiscal year 2016 budget isn’t ended.

The current fiscal year ends June 30, and unless there’s agreement among a group of Democrats in the state House and the Majority Republicans by then, a state government shutdown could be possible.

As remote as it might seem, there is concern that even the possibility of it could raise concerns among bond rating agencies who are already wary of Alaska’s huge deficits.

There are still six to seven weeks for a bargain to be struck — the main issue is over money — and a deal is likely given the high stakes. However, who would have thought the impasse would have lasted this long past the Legislature’s scheduled adjournment of April 19?

Both sides seem dug into the positions and there’s little that Gov. Bill Walker can do except jawbone, because only the Legislature can appropriate money, not the governor. Walker is reported to be meeting with both sides to try and find compromise.

Here’s what the disagreement is about: The state faces a yawning budget deficit of about $3.9 billion for the current budget year, ending June 30, and another deficit of about $3.2 billion is estimated for fiscal year 2016.

There are two liquid asset reserve funds available to fill these gaps. One is a Statutory Budget Reserve, or SBR, that can be tapped with a majority vote by the Legislature. The second is the Constitutional Budget Reserve, or CBR, which requires a three-quarters vote of both the House and Senate.

In the Republican-controlled, 20-member Senate there are enough votes in the majority to provide the three-quarter approval of 15 votes. That’s not the case in the 40-member House, however. The Majority doesn’t have the needed 30 votes. Some votes are needed from the House Democratic Minority.

The impasse kept lawmakers in Juneau an extra week beyond the statutory adjournment deadline of April 19, but they finally gaveled out on April 27 after passing a budget bill agreed to in a House-Senate conference committee.

The budget funded the deficit for the current fiscal year 2015 budget, but not the fiscal year 2016 budget. The governor immediately called a special session, mainly on the budget, to begin April 28.

Legislators covered funding for the fiscal year 2015 deficit with money from the SBR fund, which pretty well drained that fund, and with money taken from the Public Education Fund, a reserve held for school allocations for fiscal year 2017. 

Republican House and Senate leaders have passed a budget that trims state operations spending for fiscal year 2016 by about $443 million.

Democrats in the state House say too much is being cut. The governor is proposing that $95 million be added back, but the Republican-controlled Senate Finance Committee said that’s a non-starter.

Not surprisingly, the House Democrats are bargaining hard for their votes on the needed CBR withdrawal for fiscal year 2016. They are demanding more money for education, the state’s honoring of 2.5 percent cost-of-living pay raises for unionized state employees agreed to by contract, and expansion of Medicaid as allowed under the federal Affordable Care Act.

The governor is urging legislators to resolve the money issues before the end of the fiscal year on June 30 so that the budget for upcoming fiscal year 2016 is fully funded.

 Although Walker included Medicaid expansion in his call for a special session, in subsequent remarks he has said he is willing to have legislators consider Medicaid in a separate special session later this summer.

It’s not known whether the House Democrats will agree to that, however.

On the money issues, the big controversy has been over funding for education. The Senate Finance Committee cut money for schools by more than $47 million for fiscal year 2016, but a House-Senate conference committee softened it to a $16 million reduction.

However, the conference committee also did not fund two increments of additional money for the Base Student Allocation, or BSA, a formula that governs state money for school districts, that were authorized by lawmakers last year.

These would have amounted to $12.5 million added one year and an additional $12.5 million in the second year.

Just how much more the House Democrats are pushing for is unknown, although it has been said that eliminating the $16 million cut and funding the two sequential $12.5 million increases is being requested.

As for the state employee pay raises, the increases for unionized state employees add up to about $33 million in state unrestricted general funds for the union members and about $12 million in state unrestricted general funds for the non-union state employees.

In a budget bill introduced at the start of the special session the governor has asked for $54.59 million in additional state unrestricted general funds and the spending of an additional $29 million transferred from other funds, or a total of about $95 million.

In addition to money for education and the union state employees’ pay raises — but not the non-union workers — Walker asked for money to be restored to other agencies, such as $7 million for state ferries an $7 million to the University of Alaska.

It is not clear whether Walker’s budget request would meet all the demands of the House Minority Democrats.

Meanwhile, in terms of available money, if the funding for fiscal year 2016 is not resolved the state will be able to limp along and pay bills until the end of September, or possibly through November by raiding two other reserve funds that can be tapped by a majority vote. One is an endowment established to support rural Power Cost Equalization payments, which has about $980 million.

A second is a fund established to support scholarships for Alaska students, which has about $460 million.

However, the Earnings Reserve Account of the Permanent Fund, an account that holds accumulated earnings that are not spent on citizen dividends and inflation-proofing payment to the principle of the fund, holds about $6 billion and could also be tapped by the Legislature with a majority vote.

However, any use of fund earnings is considered politically risky for legislators, although the money is available if really needed. Whether it would be tapped to avoid a state government shutdown, if it came to that, is an unknown.

Updated: 
11/20/2016 - 9:02am

Comments