Legislators take on Permanent Fund, budget bills

Legislators tackled the heavy-lift items in Juneau this last week. The Senate had Senate Bill 26, its Permanent Fund restructuring bill that also includes a state spending cap, poised for final passage March 15.

The bill is being closely watched because it represents a first step toward a major restructuring of state finances.

The bill sets out a percent-of-market value procedure for withdrawing funds from the Permanent Fund’s earnings for the state budget and to pay the Permanent Fund dividend. The effect would be to cap the dividend at about $1,000 for a period, after which it could grow again.

About $2 billion a year in new funds would be made available for the state budget which would still leave a gap of about $700 million for fiscal year 2018 that begins July 1, requiring another draw from state reserve funds.

Meanwhile, the state House was grappling with the operating budget for the third day on March 15, dealing with numerous amendments offered by an aggressive minority.

The House is controlled essentially by Democrats in a coalition with a handful of dissident Republicans, but the margin of control, 22 to 18, is narrow, and the Republican-led minority was successful March 13 and 14 in peeling away several votes to pass several amendments to the budget on the House floor.

Overall, the House operating budget is very close to the governor’s proposed budget.

The Senate Finance committee, meanwhile, was expected to introduce its version of the operating budget late March 15. This will combine the budget subcommittee recommendations into a single bill.

After being reviewed a public hearing will be held and the bill will likely be held until the House passes its operating budget and sends it to the Senate, which will likely occur March 15 or a day or so following.

The Senate is aiming at a cut in a substantial cut of undesignated general fund spending of about $300 million, with a goal of 5 percent reductions in the four largest state agencies, the departments of transportation, education, health and social services and the University of Alaska.

Based on what was known of the Senate subcommittee reports on March 14, the 5 percent reduction goal was achieved for the university, with a $16.1 million reduction in state general funds from the governor’s proposed spending plan, and the Department of Health and Social Services, with a $33.3 million reduction in state general funds from the governor’s budget.

For the education department, a reduction in the Base Student Allocation, or BSA, for school districts was being discussed to meet the 5 percent reduction target. The BSA is a formula that allocates state funds to school districts, which is one of the largest expenditures in the state budget, exceeding $1 billion overall.

On a broad level, at about mid-point for the scheduled 90-day legislative session the basic structure of competing House and Senate priorities are now apparent.

The House coalition Majority wants essentially no budget cuts while the Senate Majority wants $300 million in reductions. The Senate’s Permanent Fund restructuring, SB 26, has a spending cap that would retrain the budget to $4.1 billion, about the current level, which House leaders say they oppose.

The House Permanent Fund restructuring, in HB 115, in still in the House Finance Committee, and also has a personal income tax. Senate leaders say no to that.

There’s general agreement on the Permanent Fund proposal, and all versions of this proposal in play use variations of a percent-of-market-value annual draw and mechanisms to preserve a dividend.

The state fuel tax increase, which is sitting quietly in HB 60 in the House and SB 26 in the Senate, is considered likely to pass. Both bills are in a very advanced position and are in their respective Finance committees, and no significant opposition has developed so far.

The fuel tax increase would raise $45 million in fiscal year 2018 and about $85 million per year after that.

Senate leaders argue that their SB 26 Permanent Fund restructure and spending cap would balance the budget in several years as revenues from the Fund grow, and if the state general fund budget is kept steady, although an inflation increase is allowed. Based on this assumption, Senate leaders say there’s no need for a major new revenue source, at least for now.

House leaders disagree. Although the Senate’s spending cap in SB 26 does allow an inflation adjustment, there will inevitable difficult-to-control upward pressures on the budget, mainly in health care, House leaders say.

Plus, there’s little discussion so far about a long-term plan for a state capital budget. The various spending plans being discussed assume a $180 million-per-year capital budget, which basically pays the state match for federal project money and leaves about $100 million per year for major maintenance and replacement of public facilities.

Tim Bradner is co-publisher of Alaska Legislative Digest and a contributor to the Journal of Commerce. He can be reached at [email protected].

03/15/2017 - 12:09pm