2020 Forecast: Time — and savings — have run out for Legislature

  • More than five years after oil prices started their downward spiral, Alaska has yet to resolve its financial problems and now the Legislature is facing far fewer options after nearly draining the state’s savings accounts. (Photo/Becky Bohrer/AP)

The clock has been ticking for five years and time is almost up.

The numbers show Alaska lawmakers will be forced to make several hard decisions in 2020 that have been put off as long as possible since oil prices collapsed in late 2014. Barring a seemingly impossible return to $100 per barrel oil, the Legislature and Gov. Mike Dunleavy can no longer rely on savings to fund a large chunk of the state budget.

While the governor’s December budget proposal calls for one last large draw of more than $1.5 billion from the roughly $2.1 billion Constitutional Budget Reserve — the state’s last remaining savings account — nonpartisan experts from the Legislative Finance Division and many lawmakers have said draining the CBR to less than about $1.5 billion would hamper the state’s ability to respond to emergencies and challenge day-to-day cash management.

Further, Dunleavy has appeared ambivalent towards his budget plan that calls for overall flat funding of state operations at about $4.5 billion in unrestricted general fund appropriations while spending an additional $2 billion to fully fund statutory Permanent Fund dividend payments.

Following major pushback on his original plan to cut more than $1.2 billion in spending to balance the state budget and pay larger PFDs, the governor has opted to push the major fiscal decisions to the Legislature and Alaskans at-large.

A couple big shifts did occur over those years that lawmakers spent more than $14 billion in state savings to delay the generational policy calls. Legislators took a big step towards shrinking the state’s multibillion-dollar budget deficits in 2018 when they agreed to institute an annual, endowment-style draw on the $65 billion Permanent Fund to pay for government services and PFDs, but at the same time punted on a new dividend formula and in doing so prolonged the issue.

The idea of reforming the PFD formula to ultimately pay out smaller dividends was once considered political suicide for obvious reasons, but it is now a policy demanded by the majorities in the House and Senate and will be the dominant topic during the 2020 session (or sessions).

On top of that, traditionally fiscal conservative Republicans in Senate leadership positions are pushing to examine potential new tax revenues — such as increased motor fuel taxes and an education head tax — ideas that historically have been laughed out of the Legislature.

Dunleavy, who started his term by wholly rejecting new taxes and smaller PFDs, has said he is open to discussing all of the options for closing the state’s $1.5 billion budget gap, but he has maintained that any changes to the PFD should be preceded by a public advisory vote to gauge Alaskans’ appetite for such a historic policy change.

Underlying all of the 2020 happenings in Alaska politics — at least initially — will be the attempt to recall Dunleavy from office. The recall backers’ appeal to the Division of Elections rejection of their petition application is scheduled for Jan. 10 in Anchorage Superior Court.

The lawsuit is headed for the Alaska Supreme Court regardless of how Judge Eric Aarseth rules on the matter, but if he rules in favor of the recall backers they would be allowed to start gathering the more than 70,000 signatures needed to reach the ballot.

If allowed, the recall vote would be held 90 to 120 days after the Supreme Court issues its ruling and the petition is certified — including up to 30 days to certify the signatures — or at the same time as the statewide primary or general election if the election schedules align, according to Division of Elections materials.

It should be noted that Aarseth and the Supreme Court justices will be evaluating the validity of the 200-word statement detailing the grounds for the recall effort and if any of the four counts levied against Dunleavy in the statement rise to the level of incompetence, lack of fitness for office or neglect of duties.

While it’s unknown whether Dunleavy will have to face voters again ahead of schedule, the entire House and half the Senate will be up for election to add another factor to the calculus of legislators faced with the reckoning of long postponed choices.

12/24/2019 - 1:24pm