Optimism for 90-day session begins to fade
The optimism that this year would be different than the previous three is starting to wear off just four weeks into the legislative session.
Most legislators are still saying, at least publicly, that they are confident this year’s work can be done in 90 days and not drag into June or July as has become the norm during the continuous political battle over how to fix the state’s multibillion-dollar deficits.
However, Democrat House Speaker Rep. Bryce Edgmon said he is predicting more of the same ahead given unwavering opposition from Senate Republicans to his caucus’ proposed budget fixes.
“I see more gridlock and I see more stalemate coming up,” Edgmon said during a Feb. 13 press briefing.
While he said he also started the session with optimism that the Legislature would reach a long-term fiscal plan in its allotted time, his pessimistic comment was in response to what came out of a Senate Majority press conference a day earlier.
Republican Senate President Pete Kelly said Feb. 12 that he would like to see the House Majority’s tax proposals “in the garbage can.” During a January talk in Anchorage with Edgmon about their respective priorities before the start of the session Kelly said the talk of a broad-based tax would be met with “mocking laughter” from Senate leaders.
For his part, Edgmon said the House Majority is willing to compromise and discuss the appropriate amount of future Permanent Fund dividends, government service levels and a draw from the Permanent Fund earnings to pay for government.
He said well before the session that the House coalition would not again push for an income tax this year after the Senate wasted little time voting down the tax the House passed last session.
“I think to draw those sharp lines sand this early in the session does not lend to compromise,” Edgmon added.
Other prominent officials in the capitol have said they do not see a quick resolution to the session as each side’s stance on how to resolve the deficit has not materially changed.
Republicans have continued stressing that further budget cuts and maximizing a sustainable draw from the Earnings Reserve of the Permanent Fund could balance the state’s finances without the need for a personal income tax. According to Kelly, lawmakers need to start changing their rhetoric away from emphasizing a fiscal crisis because the state now has enough revenue to close the budget gap in a few years.
“Now with oil prices and production we’re in the grasp of a balanced budget,” he said.
Republican Majority Leader Sen. Peter Micciche said based on Gov. Bill Walker’s budget proposal for a roughly $4.6 billion unrestricted General Fund budget, the Legislature could get within $300 million of balancing the budget this year based on higher than projected oil prices and production that is inching upwards as well.
“With just a buck or two (of higher oil prices) in the next couple years we’ll be balanced,” Micciche said.
His assertions also presume the Senate-passed version of Senate Bill 26, which would set a 5.25 percent of market value, or POMV, draw from the Earnings Reserve for three years and drop the draw to 5 percent thereafter.
However, the governor’s budget does not include funding for the state’s annual oil and gas tax credit obligation because his administration is proposing to sell bonds to fully pay off the credits in an $800 million lump sum now that the program has ended.
Without passing the credit-bonding legislation or finding some other resolution, the Legislature will likely be forced to add at least $206 million — the statutory minimum formula payment — to the budget.
Micciche has also said the Department of Health and Social Services needs to focus on Medicaid utilization as a means to substantively curb the state’s ever-growing health care bill.
Homer Rep. Paul Seaton, Finance co-chair and one of three Republicans caucusing with the Democrat-led House Majority, acknowledged Feb. 13 that there is going to be a draw from the Earnings Reserve this year, as the $2.4 billion in the state’s savings accounts are not likely to cover the deficit alone.
Additionally, administration and nonpartisan Legislative Finance officials insist the Constitutional Budget Reserve, which will have approximately $2.1 billion at the start of next fiscal year, should always hold at least $1 billion, ideally more, to cover expenses in an emergency and for cash flow management.
Democrats have noted future budgets would have to increase by more than $100 million per year to keep up with inflation at current service levels while Senate leaders insist the Legislature can beat inflation with further cuts.
Rep. Les Gara, D-Anchorage, introduced legislation to increase the key base student allocation formula by $100 per student Feb. 9. He contends K-12 education has lost $90 million of funding since 2015 through cuts and the impacts of inflation.