Week 5 in Juneau: A somber mood after passing of Gruenberg

JUNEAU—The mood in the capitol building was somber this week.

Legislators were saddened by the unexpected death last Sunday of Rep. Max Gruenberg, a long-serving and well-liked lawmaker.

On Wednesday, Gov. Bill Walker, flanked by top industry executives, announced the Alaska LNG Project was going on the slow-track. Walker did everything he could to avoid saying delay, but that was the effect of what the governor did say.

Finally, oil prices and state revenues are still in the pits, with no relief in sight.

On Gruenberg, legislative leaders had words of praise as they remembered a thoughtful, precise lawmaker who brought insights from years of practicing law and legislative service to committee meetings. The House Judiciary Committee, which Gruenberg once chaired when in the Majority, was his turf, and his advice was listened to.

On Friday, the House unanimously passed a resolution naming the Judiciary Committee room after Gruenber.

“Max, in many ways, was an institution, with a depth and breadth of knowledge that will never be replaced. We’re honoring him as one of the greats. Naming the room after him ensures his spirit lives on,” said Speaker Mike Chenault, R-Nikiski, who introduced House Resolution 6, naming the room.

In the Senate, Minority Leader Sen. Berta Gardner, D-Anchorage, had equal praise: “He (Gruenberg) was a Talmudic scholar for our time, with an eye for detail, and a love of the fine point. He had the kindest and most gentle of hearts, and took great joy in many explorations — in books, in people, in history, and in the world of possibilities. His absence will be such a loss for all of us.”

Gruenberg joins other legislative icons with rooms named after them, like former Speaker Ramona Barnes (Capitol Room 124,) and former Sens. Betty Fahrenkamp (Room 203,) John Butrovich (Room 205,) and Senate President William Beltz (Thomas Stewart Building Room 105.)

LNG stalls

On LNG, Walker’s press conference Wednesday with officials from BP, ConocoPhillips and ExxonMobil was held in Anchorage and telecast to legislators in Juneau.

It brought a puzzled response in the capitol. There was no announcement being made other than an acknowledgement that the extended period of low oil prices was taking its toll, and had clouded prospects for the project moving along on its current schedule.

“Change is coming, details to follow? I wish there was something more concrete coming from today’s event,” Chenault said following the press conference.

Walker said the companies had raised the market issue with him, and the governor had decided to go public with it, and to assure people there was still forward momentum, that work on preliminary engineering would continue.

Prices in Asia for liquefied natural gas, or LNG, are at very low levels along with crude oil prices, and although it will take a decade for the Alaska LNG Project to be in operation, a time when energy prices may be far different, low oil prices cuts into the financial capability of even large companies to advance the project.

Meanwhile, complex negotiations on commercial agreements needed for the project have not progressed, Deputy Natural Resources Commissioner Marty Rutherford told the Senate Finance Committee in budget briefing Thursday.

“We are seriously behind schedule on the commercial negotiations,” Rutherford said.

Rutherford will become the interim DNR commissioner March 1 after current Commissioner Mark Myers announced his retirement on Tuesday.

In the press conference Walker said the state and the companies will now discuss a reconfiguration of the project to lower costs, with a goal of having a new plan in March. Rutherford, in the budget briefing, said discussions on a new plan started Thursday.

Presumably any changes would involve the commercial structure of the project since changing the design parameters at this point would be expensive given the advanced stage of engineering and regulatory work.

Rep. Mike Hawker, R-Anchorage, said he wasn’t surprised at the development.

“The stage-gate at the end of Pre-FEED (preliminary engineering) was always intended as a pause for all four parties to carefully evaluate the feasibility of this project before committing to the multi-billion dollar FEED (final engineering) phase,” he said.

At the press conference, Steve Butt, an ExxonMobil manager leading the Alaska LNG technical and regulatory work, said work on preliminary engineering is continuing with a goal of completing it by the end of the year. A revised cost estimate is being developed as a part of that, he said.

Budget work continues

Legislators, meanwhile, were focused mainly on their budget work during the week. The House has suspended all committee work on bills not dealing with the budget or fiscal issues and many committees canceled meetings so their members could attend agency budget subcommittee meetings.

Chenault said the move in the House to stop work on bills not connected to the budget and fiscal issue was having its desired effect.

“We are seeing a lot more participation in the Finance subcommittees because members aren’t being distracted by other bills,” he said. “We need all the input we can get into the budget discussions.”

The Senate has continued work on non-budget bills but at a slower pace, with its members similarly focused on spending and possible new revenues.

Each state agency is working with a House and Senate Finance subcommittee on its budget and every legislator sits on a subcommittee, with those chaired by members of the House or Senate Finance Committees.

When the subcommittees produce their recommendations, which are expected starting this week, the chair of the subcommittee will present the work to the full Finance Committees.

The recommendations may or may not be accepted. Traditionally the House develops the operating budget, usually in early March, and sends it to the Senate in late March.

The Senate Finance Committee, meanwhile, works with its own subcommittees on recommended spending levels for agencies so as to be ready when the Senate formally receives the operating budget from the House.

It works the other way on the state’s capital budget, which is mostly for construction. The Senate usually develops this first and sends it to the House, typically in early April. Differences in the budgets between House and Senate are worked out in budget conference committees toward the end of the session in the third week of April.

There is apprehension, however, that the train wreck at the end of the 2015 session may be repeated this year. A withdrawal of funds from the Constitutional Budget Reserve, or CBR, a state savings fund, will be needed again this year to cover a large budget deficit, and a three-quarters vote of the House and Senate is required.

The Republican majority in the Senate can deliver 16 votes, or three-quarters of that 20-member body, but in the House the Majority cannot command the 30 votes needed in that 40-member body. Votes of the House Minority are needed. Last year House minority members withheld their votes to get changes in the budget and an impasse developed that dragged on into June, through two 30-day special sessions.

In an interview, House Minority Leader Chris Tuck, D-Anchorage, said he hopes to avoid a repeat of last year’s breakdown by working out an agreement early on budget issues. The House Minority and Majority have engaged earlier this year to discuss priorities, Tuck said. Negotiations started late last year, which led to the breakdown.

“CBR withdrawal votes have been held several times in the past but it had been years since we’d done it, and we were all a little rusty at it,” Tuck said.

On the governor’s fiscal policy and revenue proposals, legislative committees continue hearings on the main plans put forth for using a part of Permanent Fund earnings.

These include the governor’s plan, which involves a kind of replumbing of the Permanent Fund income management and the Permanent Fund Dividend; a proposal by Sen. Lesil McGuire, R-Anchorage, which also “replumbs” the Fund’s income use and dividend, but is simpler.

Hawker also has a bill in that pursues the same goals but along different paths, and is also relatively simple.

The most active committees on these are the Senate State Affairs Committee and the House Finance Committee. There are no signals yet on what these committees will do with the proposals, however.

Public hearings have been held by the Senate State Affairs Committee with much of the comments by the public opposed to using Permanent Fund earnings or reducing the citizen dividends.

The future of the governor’s tax proposals is up in the air too, although committees have been having hearings on several including proposed tax increases to minerals (HB 253, SB 137), fisheries (HB 251, SB 135), tourism (HB 252, SB 136), alcohol (HB 248, SB 131), and Tobacco and E-cigarettes  (HB 304, SB 133).

Not surprisingly, there is opposition being voiced in the public hearings on the bills.

Walker’s personal income tax bill (HB 250, SB 134) was up for its first hearing Thursday in the Senate Labor and Commerce Committee, but the hearing was cancelled and rescheduled for Feb. 23.

Meanwhile, an interesting aspect of the tourism tax measure is that it could upset a legal settlement between cruise companies and the state that was brought after a state cruise passenger tax was first enacted. Ketchikan and Juneau also enacted municipal cruise taxes.

There was serious concern over the lawsuit because the imposition by the state of a tax on interstate commerce, on cruise passengers, could be seen as a violation of the U.S. Constitution’s commerce clause. The settlement was reached after the state agreed to reduce the tax and make other changes, and also to restrict the use of funds raised by the tax to improvements that directly benefit cruise ships and passengers.

Using the money from taxes imposed on interstate travel in ways that benefit those travelling would likely pass muster in the courts, it was reasoned at the time. Using the money to support the state’s or municipalities’ general fund would likely fall, attorneys felt.

The governor’s bills now would raise the tax indirectly, by disallowing a credit of local taxes paid against the tax owed the state. This in itself might not upset the settlement but the state would have to use any new revenues gained only on benefits to cruise tourists or ships. The increased revenues should not be used to support the state general fund budget, in other words.

An interesting aspect to the governor’s proposed FY 2017 budget, however, is that it assumes that the Legislature will pass Walker’s fiscal reform package including the tax increases and restructuring of the Permanent Fund income management.

Revenues from the proposals are assumed and built into the budget. If legislators do not pass the governor’s package, those revenues will be backed out of the budget, increasing the state deficit by those amounts.

Included in this, however, is that only $700 million is in the governor’s amended FY 2017 budget for Permanent Fund dividends to be paid later this year. That amount is sufficient for a $1,000 dividend.

In his original budget, submitted in December, Walker had put in $1.4 billion for dividends, which would be enough to pay the dividend under the existing formulas for paying it, a little more than $2,000.

If the Permanent Fund income and dividend restructuring proposals don’t pass, there would still only be enough money for a $1,000 dividend. Legislators could add to the appropriation but they would have to take the added $700 million from state programs or cause the deficit to grow by that amount.

Tim Bradner is a correspondent for the Journal. He can be reached at [email protected].

02/25/2016 - 11:42am