James Brooks

Conference committee adopts $50M cut to university system

JUNEAU — The Alaska Legislature is planning to take the most extreme option from the budget-cutting menu covering the University of Alaska system. On Thursday evening, the House and Senate conference committee working on the state budget voted 5-1 to remove $50 million in funding from the UA system, an action that is expected to result in the loss of 400-500 jobs if approved. “At some point, this has to be a state where people want to live in, and I think this goes in the wrong direction,” said Rep. Les Gara, D-Anchorage and the sole vote against the proposal. Sen. Pete Kelly, R-Anchorage and a member of the conference committee, issued a statement after the vote. It said in part: “The action you saw in conference committee today was proof in these challenging times that everything is on the table. … I don’t like the circumstances we face, but we face them nonetheless. This is what it looks like when you have to make difficult choices.” Before being elected to the Senate, Kelly was the university system’s director of state relations, effectively the UA system’s lobbyist in Juneau. The conference committee, which consists of three members from the House and three from the Senate, is designed to reconcile the versions of the state budget passed by the House and Senate. Earlier this session, each body passed a different version with differing amounts of cuts intended to address the state’s $4.1 billion annual deficit. Gov. Bill Walker had suggested a $335 million budget for the system. The Senate suggested a $325 million budget, and the House offered a $300 million budget. During a University of Alaska Board of Regents meeting last week, system president Jim Johnsen said the House figure would entail a loss of 400 to 500 jobs, and he anticipated a tuition hike of 15 percent. The conference committee will continue work to reconcile other differences in the budget, and the final version must then be approved in separate votes of the House and Senate to become effective.  

Lacking votes to pass, oil tax credit bill sent to Rules Committee

JUNEAU — It was an alley-oop pass gone awry. On Wednesday night, as Kobe Bryant played his final game of professional basketball, the Alaska House prepared to toss the Senate a multimillion-dollar bill reforming the state’s subsidy for oil and gas drilling. While Bryant finished with 60 points, the House’s pass didn’t go as well. After lawmakers spent five days waiting for a vote on House Bill 247, Speaker of the House Mike Chenault sent it back to the House Rules Committee, saying there wasn’t enough support for the measure. “I didn’t see there was support from either side,” he said, adding that the governor’s office ─ which originally proposed the bill ─ asked him to postpone a vote. “We asked them if they had the support, and they said they didn’t,” he added. The action doesn’t mean the bill is dead. “It’s just not sitting there, languishing on the floor,” Chenault said. “It can be brought back out of Rules at any time.” When it will be brought back out is unknown. In a Wednesday morning press conference, Rep. Chris Tuck, D-Anchorage and leader of the House Minority, said reducing the oil and gas subsidies are crucial to a deal on slashing the state’s $4.1 billion annual deficit. “What is clear is this is key to having a fiscal plan for the state of Alaska,” he said. At the start of the Legislative session, Gov. Bill Walker proposed HB 247 and a companion bill, SB 130 in the Senate, to reduce the state’s subsidy by some $500 million. Other than a plan to use earnings from the Alaska Permanent Fund, no other single bill has as large an effect on the state deficit. In the House, however, lawmakers from the Republican-led majority worried about the effects that Walker’s bill would have on long-term oil and gas production. “The truth is, Alaska’s oil industry is struggling just like Alaska’s economy,” Alyeska Pipeline Service Co. president Thomas Barrett wrote in an open letter released Thursday morning. “A truth remains: the long-term health of Alaska’s oil and gas industry is as connected and vital as ever to the health of our state.” In the House Resources Committee, members of the Majority rewrote Walker’s bill, restoring hundreds of millions of dollars in subsidies. The House Finance Committee took that rewrite and made more changes, coming up with a version that contained about 40 percent of Walker’s savings, according to Ken Alper, director of the state tax division. That was the version that advanced to an evenly divided House floor. Many members of the House Majority felt it cut too much from the state subsidy. Many members of the House Minority felt it cut too little. Without significant cuts, they said, they cannot support measures that would divert money from Alaska Permanent Fund Dividends to state operations. Without cutting oil and gas subsidies, the state would effectively be diverting dividends to oil and gas companies, they said. In between the two sides were people like Rep. Cathy Muñoz, R-Juneau, a swing voter. “It’s really a key component to the endgame,” she said of the oil and gas tax bill. In 2013, the Alaska Legislature approved Senate Bill 21, which rewrote the state’s oil and gas tax structure. Lawmakers intended for SB 21 to implement a 4 percent minimum production tax effective even when oil prices dropped. Prices have dropped so low, however, that North Slope oil producers are losing money on each barrel of oil they pump through the trans-Alaska Pipeline System. Under SB 21, the producers can receive state tax credits worth 35 percent of their losses, and they can use those credits to go below that 4 percent minimum ─ all the way to zero. Furthermore, the credits (called Net Operating Loss credits) don’t expire in a given year. Companies can roll over unused credits to the following year, and their losses right now are so large that the state is expected to have more than $1 billion in outstanding NOL credits within two years. “If we have those NOLs too high, then even when prices go back up, we lose out,” she said. Muñoz is among the lawmakers seeking to reduce the number of NOL credits and to “harden” the 4 percent minimum tax so oil companies can’t go below it. “I think doing away with the floor is a mistake,” she said. The version of HB 247 that reached the House early this week contained a “hard” 2 percent floor, but that was removed in an amendment approved 20-19 on Wednesday night in the House. The resulting bill, resting in the House Rules Committee, contains just 20 percent of the savings originally proposed by Walker. “It becomes, roughly speaking, a $100 million bill instead of a $200 million bill,” Alper said of the amendment. House lawmakers had been expected to pass some sort of oil and gas legislation, an act that would move the bill to the Senate. The Senate, in turn, would pass a Permanent Fund spending bill to the House, and negotiations could progress on a compromise. Instead, the House turned the ball over, and unless lawmakers there can reach a compromise, it will be the Senate driving the discussion on both the Permanent Fund and on cuts to oil and gas subsidies.  

House works into wee hours on oil tax credits; Senate revises community revenue sharing

JUNEAU — The Alaska Senate has voted to reduce the state’s subsidy of local government. On Wednesday morning, the Senate voted 17-3 to approve Senate Bill 210, which halves Alaska’s revenue sharing program and recalculates the formula used to distribute annual payments to communities. As a result, the state’s largest cities will receive millions of dollars less in revenue while the state’s unincorporated towns and villages will see more money. “We no longer have money that we can share,” said Sen. Anna MacKinnon, R-Anchorage and co-chair of the Senate Finance Committee, as she urged lawmakers’ support. The bill is part of the Senate plan to reduce the state’s $4.1 billion annual deficit. The state’s existing revenue sharing fund, established during the 2008 surge in oil prices, was designed to contain $180 million and distribute $60 million per year to towns and cities. As planned, the Legislature would restock the fund with $60 million per year to replace what was given to communities. If oil prices fell and the $60 million wasn’t available, communities would take a third of the remaining fund each year until the money was exhausted. The FY16 payment was $57.3 million; the FY17 payment was expected to be $38.2 million, the FY18 payment would be about $25 million, and by FY19, there would be no payment. The idea was to allow communities time to adjust as the fund distributed less money, but lawmakers heard in testimony that even with years to adjust, the state’s smallest communities couldn’t cope because they lacked the tax base to come up with new revenue. SB 210 extends the program by keeping the $38.2 million payout in the coming fiscal year, but communities would split a $30 million distribution starting in 2018. Smaller communities would get a larger share of that money. Under the existing formula, Juneau would collect $971,914 from a $30 million payout. Under the new formula, it would get about $288,000 less. Communities smaller than Seward (population 2,740) would see more money under the new formula than the old one. Anchorage would see the biggest difference. In a $30 million distribution, it would get $6.5 million under the current formula and $2.3 million under the new one. “Some communities are receiving more revenue than they were in the old formula,” said Sen. Peter Micciche, R-Soldotna, in a finance committee meeting. Micciche, who served as mayor of Soldotna (population 4,319) said in committee that he had concerns with the proposal, but he ultimately voted for it on the floor. Sen. Bill Wielechowski, D-Anchorage, was one of three votes against SB 210. Reducing state revenue, he said, will lead directly to property tax increases or service cuts as cities cope with less revenue. To offset the loss, the bill removes a mandatory property tax exemption for the homes of senior citizens and veterans. By making the exemption optional, communities could offset their lost revenue by raising property taxes on veterans and those older than 65, something that testifiers said is unlikely to happen. Sen. Dennis Egan, D-Juneau, also voted against the bill. “It’s always going to be passed down,” he said of the revenue loss. “Guess who pays? Local people. It’s all passed on.” SB 210 advances to the House for consideration. Senate makes fun mandatory In other business Wednesday, the Senate voted 18-2 in favor of SB 200, a bill that requires schools to include 54 minutes of daily physical activity for all students from kindergarten through eighth grade. Sen. Bill Stoltze, R-Chugiak, and Sen. Charlie Huggins, R-Wasilla, opposed the measure, which was billed as a way to improve juvenile health and was supported by prime sponsor Sen. Mia Costello, R-Anchorage. The bill goes to the House. The Senate voted 20-0 in favor of SB 101, a bill allowing the Alaska Department of Natural Resources to sell T-shirts and other merchandise to fund state parks. The other measure receiving unanimous approval Wednesday in the Senate was SB 196, which allows the Power Cost Equalization fund to pay a dividend to the state when its investments excel. The bill also allows the PCE fund - worth nearly $1 billion, according to state figures - to be invested less aggressively. Both bills will seek House approval. House works long hours on oil and gas In the Alaska House, lawmakers worked from 7 p.m. Tuesday to 2:30 a.m. Wednesday to consider 18 amendments to House Bill 247, which cuts the state’s subsidy for oil and gas drilling in Alaska. Gov. Bill Walker’s original version of HB 247 was intended to cut spending by $400 million and increase revenue by $100 million in fiscal year 2017, but House lawmakers revised the bill, which is now expected to save just $5 million to $30 million in the fiscal year that starts July 1. Only three amendments were approved from the 18 considered, and none are expected to have a significant fiscal impact on the overall bill. Two amendments were defeated on 19-19 tie votes, including one from Rep. Paul Seaton, R-Homer, that would have brought the bill’s savings to almost 80 percent of the governor’s figure. Over the long term, the unmodified bill drafted in the House Finance Committee contains about 40 percent of the governor’s expected savings. The House was expected to vote on the overall bill sometime after 7 p.m. Wednesday evening. Results were not available by press time but will be updated in Friday’s Empire. Insurance gets attention In other business Wednesday, the House approved a trio of measures affecting insurance in the 49th state: House Bill 234, which requires insurers to cover mental health treatment delivered by telemedicine (video and audio conference), was approved 38-1, Rep. Tammie Wilson, R-North Pole, opposed. House Bill 372, an omnibus insurance reform proposed by the House Labor and Commerce Committee, was approved by a 36-0 vote with four members absent. HB 372, at 36 pages printed, incorporates a series of minor changes on a variety of insurance programs. Senate Bill 142, first proposed by Sen. Cathy Giessel, R-Anchorage, requires insurance companies to charge cancer patients the same for intravenous and self-administered cancer-fighting drugs. It was approved 36-1, Wilson opposed and three members absent. All three bills will return to the Senate, which must agree with the House’s changes on SB 142 and sign off on the House bills. The House also voted 38-0 to approve Senate Bill 124, which allows the Alaska Commission on Aging to continue operating through 2024. Rep. Scott Kawasaki, D-Fairbanks, offered an amendment to fight what he said was a plan by the Senate to cut the commission’s staff from four people to two in the coming years. The amendment was defeated 12-26, and the main bill now goes to Gov. Bill Walker for his approval.  

Senate Finance introduces bill to tap Permanent Fund earnings

JUNEAU — The Alaska Senate Finance Committee has unveiled its plan to fill much of the state’s $4.1 billion annual deficit using the Alaska Permanent Fund. In April 12 meeting, Sen. Anna MacKinnon, R-Eagle River, and co-chair of the committee, debuted “in pencil — per the governor — a committee substitute for Senate Bill 128.” Senate Bill 128, proposed by Gov. Bill Walker earlier this year, proposed reforming the $52.2 billion Permanent Fund based on a sovereign wealth fund model that would generate $3.3 billion per year from its investments for state operations. The new proposal takes Walker’s notion and blends it with Senate Bill 114, a similar bill introduced by Sen. Lesil McGuire, R-Anchorage, last year that uses what’s called a Percent of Market Value approach, or POMV. “I think this is a huge step forward. We diversify our revenue stream by almost 40 percent under this proposal,” MacKinnon said. Randall Hoffbeck, the state’s revenue commissioner, was in the audience as MacKinnon presented the compromise. “We have a mechanism now for using the earnings reserve, and that’s a major step forward,” he said. Instead of drawing a fixed amount, the compromise plan draws a fixed percentage, 5.25 percent of the Permanent Fund’s average year-end value for five of the six previous fiscal years. Of that draw, 20 percent would be reserved to pay the Alaska Permanent Fund Dividend. The plan guarantees a $1,000 dividend from 2017 to 2020, and the dividend would float after that, likely generating between $900 and $1,000 for every Alaskan, according to projections provided April 12. Without a change, the dividend would be $2,000 or more this year. The state would also stay on course to run out of savings by 2021. That fear — of running out of money to pay for state operations — is driving the compromise proposal and the ones suggested by Walker, McGuire and a fourth option proposed in the House by Rep. Mike Hawker, R-Anchorage. Most of the Permanent Fund, the $45.6 billion principal, is constitutionally protected and can’t be spent. The earnings reserve, which collects the investment earnings of the fund and held $7.1 billion as of Feb. 29, can be spent, and it’s what the four plans rely upon. According to the MacKinnon plan, the Permanent Fund would continue to grow even if the earnings reserve is spent. It, like the governor’s plan, is predicated upon the fund earning an average of 6.9 percent on its investments. The fund would also continue to receive 25 percent of the state’s oil and gas royalties, which are deposited into the corpus. “You’re earning 6.9 percent but paying out 5.25 percent or really lower than that,” said David Teal, director of the Legislative Finance Division. There are two principal differences beyond the type of draw between the compromise plan and the governor’s proposal. The first is that the compromise does sweep the state’s $8.2 billion Constitutional Budget Reserve into the Permanent Fund. Walker had suggested that as a way to supercharge the fund for long-term investment and protect it from events like the Great Recession in 2008-09. The compromise plan also ensures a higher dividend than Walker’s proposal does. As a result of that higher dividend, it doesn’t close the deficit as much as Walker’s proposal does — at the current value of the Permanent Fund, it would generate about $2 billion per year instead of $3.3 billion. According to projections, if the compromise were enacted this year, the state would still have a deficit of $2.2 billion in fiscal year 2017, which starts July 1. That deficit would be present even with almost $250 million in budget cuts and about $20 million in cuts to the state’s oil and gas drilling subsidies. “This is the Senate’s best proposal at this time to fulfill, to close the budget gap and to not impact individual Alaskans with taxes,” MacKinnon said. To make ends meet in 2017, the state would use about a quarter of its Constitutional Budget Reserve. More subsidy cuts are expected in fiscal year 2018, and the impact of reforms to Medicaid and the state’s prison system will also have an impact. With oil prices expected to rise only slightly, the deficit is expected to shrink to about $1.6 billion, barring spending increases. That’s low enough to be filled with more spending from the budget reserve. The long-term view also calls for a state undesignated general fund budget of about $4.5 billion per year, plus about $700 million for dividends. Barring a spike in oil prices or significant tax increases, the compromise plan would not balance the state’s budget through at least 2026, but the deficit would shrink to the point that the budget reserve could pay for it each year. The remaining deficit could also be resolved by other tax increases or an unexpected rise in oil prices. Walker has proposed raising additional taxes to balance the budget by 2019; debate on those tax bills has stalled. “This does not solve all of Alaska’s problem, but it goes a long way,” MacKinnon said. Hearings on the plan were scheduled for April 13 and 14.   Contact reporter James Brooks at [email protected]  

House Finance introduces latest version of tax credit cuts

JUNEAU — The latest version of a bill cutting the state’s subsidies to oil and gas drillers is about 40 percent of what was first proposed by Gov. Bill Walker, the state’s tax director told lawmakers Wednesday evening. The declaration came after members of the House Finance Committee introduced a modified version of House Bill 247 earlier in the day. HB 247 is a cornerstone in Gov. Bill Walker’s proposal to erase the state’s $4 billion deficit by 2019. As originally proposed, Walker’s bill would have a $435 million impact on the deficit in fiscal year 2018, which starts July 1, 2017. The House Resources Committee drastically overhauled the governor’s proposal, producing a bill with a deficit reduction of only $70 million. The Finance Committee took the Resources Committee’s version and came up with something else. “The bill before you is somewhere in between,” said Ken Alper, director of the state Tax Division. According to documents presented to committee members, the newest version would reduce the deficit by $195 million in fiscal year 2018. “It’s a little bit of a half version or a 40 percent,” Alper said, comparing the new version to the governor’s original idea. Reforming the state’s subsidies for oil and gas drillers is the second-biggest piece of Walker’s plan to fill the state deficit. At issue are the tax credits the state issues to drillers for exploration and production, and the tax rate set by Senate Bill 21, a wide-ranging oil and gas tax reform bill approved by the Legislature in 2013. SB 21 set a minimum production tax of 4 percent. That floor contained a significant loophole, however. At current oil prices, oil producers are losing money and earn Net Operating Loss tax credits they can use to lower their taxes to zero. Walker proposed removing that ability and raising the floor to 5 percent. He also proposed limiting the amount of credits the state gives out. In presentations across the state, representatives of the governor’s office said they expected the governor’s reforms to save $500 million per year. The Finance Committee is considering a milder version of the bill, which includes several key aspects: Instead of a minimum production tax of 5 percent, the House bill proposes a minimum tax floor of 2 percent; Instead of a $25 million cap on the amount of credits per company per year, the Finance Committee is considering a $100 million cap; Cook Inlet oil would be taxed for the first time; Cook Inlet tax credits would be reduced, but not as much as proposed by the governor. Speaking to the committee, Alper warned that at current oil prices, the revised bill does not prevent major oil producers from setting up a “wave” of tax credits that could wipe out production taxes for years into the future. “Below $46 a barrel, they’re losing money (on the North Slope),” Alper explained. For every dollar the price of North Slope oil is below $46, producers lose $180 million. When that happens, the state pays 35 percent of the loss in tax credits. At current prices, the loss is so great that the companies have more tax credits than tax payments. The credits can carry over to next year, wiping out that year’s production tax. The process can repeat for years, the producers building up a larger and larger stack. “That’s a wave that will build and roll forward until, let’s say, you get a catastrophic spike in oil,” Alper said. If that happens, the state might expect billions in revenue from production taxes but get millions or billions less because of the “wave” of built-up tax credits. Next year, the state is expected to face $825 million in tax credit liability. That alarmed at least one member of the Finance Committee. “I think we need tax revenue to be able to afford $800 million in tax credits,” said Rep. Les Gara, D-Anchorage. Other members of the committee said the tax credit program seems to be working. Between April 2015 and March 2016, North Slope oil production rose 1 percent. That was the first yearlong increase in production since 2002. Production is still expected to decline in the long term, but Rep. Tammie Wilson, R-North Pole, said she would like to hear more about how the credit system is working. “The part we don’t really hear is how much money we’re actually making every year,” she said. “When do we know as legislators that we’ve tipped the scale too much?” The Finance Committee is expected to spend Thursday and Friday debating that issue. When it approves the bill, something that could come as early as this weekend, it will go to the House floor for a vote. The bill will then head to the Senate for committee vetting and a floor vote. Walker will have the final say, and if he does not like the final result, he could do what he did last year and veto some or all of the funding for the oil and gas tax credit program. The state is statutorily required to pay only about $70 million in credits. “Quite frankly, we cannot provide certainty and stability to the industry under a credit regime if, when it comes time to write the check, we don’t have enough money,” said Revenue Commissioner Randall Hoffbeck.  

Young speaks out on GOP race, gas taxes, drug policy

JUNEAU — Alaska’s lone delegate to the U.S. House of Representatives wrapped up a visit to Juneau on Tuesday, telling an audience at Elizabeth Peratrovich Hall that he supports an increase in national and state gasoline taxes, is opposed to prison for drug users, and supports Ohio Gov. John Kasich to be the Republican nominee for president. Don Young spoke to more than 120 people at the weekly Native Issues Forum hosted by the Central Council Tlingit Haida Indian Tribes of Alaska. Young is in Alaska during a Congressional recess that lasts until April 12. He next travels to Sitka. Before speaking, Young posed for selfies and cellphone photos with audience members who had to wait until the end of his remarks for his presidential choice. “I’m not supporting Donald Trump. I’ve said that publicly. I am supporting Kasich because I think he’s the smartest one of the bunch,” Young said. In office since 1973, Young has been in the House longer than any other sitting Republican. He has served under eight presidents and - barring a defeat this fall, will soon serve under a ninth. “I’m not worried about the size of your hand or your wife’s looks or these other things. It’s silliness,” Young said of the furor surrounding Republican frontrunner Donald Trump. Young has a simple answer for why that furor exists. “Who I do blame?. The people,” he said. “A bunch of idiots following Pied Piper over the cliff. That’s who I blame. I mean, nobody wants to read anymore. No one wants to find out the background anymore. And they blame Donald Trump. I blame the people.” After an audience member asked about Young’s views on marijuana, Young responded that the voters of Alaska have decided, and as a backer of state rights, he supports Alaskans’ views. “Either you’re for states’ rights or against them. You can’t have it both ways,” he said. While he believes marijuana is addictive, he said alcohol is worse, and the state has legalized both. He said he does not believe drug users should be jailed for their addictions, but he believes government should go after drug dealers, particularly heroin dealers, whom he said are murderers. “It is probably the scourge of the United States,” he said of heroin. When Central Council president Richard Peterson asked Young’s views on the federal government’s role in fighting that scourge, the Congressman responded that local communities need to take action. Many times, particularly in small rural communities, residents know who the drug dealers are, but they are afraid to act, Young said. “You can’t always expect somebody else to do it for you,” he said, adding that he supports the ability of local courts to punish offenders locally. Young did not directly address Alaska’s $4 billion annual state deficit, following a pattern set by U.S. Sens. Lisa Murkowski and Dan Sullivan during their in-state visits. After a question regarding transportation funding, however, he did touch on one portion of the proposed solution, saying he supports the effort in the Alaska Legislature to raise the state motor fuels tax, but only if revenue from that tax is dedicated to transportation. Article IX, Section 7 of the Alaska Constitution forbids dedicated funds, but Young said he thinks a determined Legislature can find a way to do it. “I’ve suggested that respectfully,” he said. “You don’t believe you can do it, but I believe you can.” Young has long supported raising the federal gasoline tax to keep pace with the rising efficiency of American cars. In 2003, as chairman of the powerful House Transportation Committee, Young proposed raising the federal gas tax from 18.4 cents per gallon to 33 cents per gallon by 2009. The measure failed after opposition from President George W. Bush and others in Congress. Young also referenced bills he has introduced in Congress to make more land available for resource development, something he views as a top priority. “You’ve got to be able to harvest your trees, mine your minerals, drill for oil, grow your crops, catch your fish. Those are real dollars,” he said. “The rest of it is frosting, and by the way, just putting frosting in a bowl is no good for anybody.” James Brooks can be reached at [email protected]  

Pause put on retirement bills following new estimates

A plan by the Alaska Senate Finance Committee to require local governments to pay more for public pensions has hit a snag. Late Sunday, the committee canceled hearings on Senate bills 207, 208, 209 and 210, an interlocking series of proposals whose goal is to boost the local contribution to the public employees and teachers retirement systems. With less than two weeks left before the scheduled end of the Legislative session, the cancellation is the functional equivalent of a runner stumbling in the 400-meter sprint. It’s possible to catch up ─ but very difficult to do so. Speaking Monday morning, staffers working on the bills said actuarial analysis of the bills had come up with unexpected figures, and both lawmakers and staffers had to reconcile the results. The Associated Press reported that Sen. Anna MacKinnon says the initial indications are that there's a significant drop in the state liability. If that's the case, she says there may not be a need to move the bills forward. The AP also reported Legislative Finance Division Director David Teal says an actuary provided numbers but he's not clear on the reasons behind them. He says the estimated state contribution for both goes down in fiscal year 2018 though by different percentages. Under the Legislature’s normal operating rules, meetings must be scheduled with at least one week’s notice. As the end of the session approaches, the Legislature is expected to begin operating under the “24-hour Rule,” which requires one day’s notice before a committee meeting, on Wednesday. Senate bills 207 through 210 propose a staged increase in local governments’ contribution to PERS and TRS over several years. SB 209 calls for raising the local government’s contribution toward public employee retirement from 22 percent to 26.5 percent by July 1, 2018. SB 207 calls for the local contribution to teachers’ retirement to rise from 12.56 percent to 22 percent by July 1, 2019. SB 208 eliminates the Alaska Performance Scholarship program and diverts the money in the scholarship fund to school districts to offset the increase in the first year and some of the increase in later years. SB 210 revises the state’s revenue sharing program to give more money for smaller communities and less money for larger communities, then removes a property tax exemption for seniors. The theory, according to the drafters of the bills, is that revenue sharing will compensate smaller communities for their cost increase, while larger communities will be able to earn more revenue from property taxes. All four bills have been hotly opposed by the Alaska Municipal League, individual towns and cities, the Alaska Association of School Boards and individual school districts. Speaking Monday morning, Sen. Donny Olson, D-Golovin and a member of the Senate Finance Committee, said the hearings’ cancellation doesn’t mean the bills are dead. “I would not say that’s the case,” he said. Rather, the committee is instead “concentrating on some of the bigger, low-hanging fruit” when it comes to balancing Alaska’s $4 billion annual budget deficit. Contact Empire reporter James Brooks at [email protected] or 419-7732.

Bills aim to reduce state share of pensions, ax scholarships

JUNEAU — At the end of a March 29 Senate Finance Committee hearing, Sen. Anna MacKinnon, R-Anchorage, was envisioning a bridge. Constructed of four interlocking pieces of legislation, the bridge would allow the state to shift millions of dollars in pension liabilities to local governments across Alaska. “The state cannot continue to bear the costs ... when those costs are in the hundreds of millions of dollars,” she said. With the state facing a $4.1 billion annual deficit, “we just don’t have the funds to continue to invest the same way we have in the past,” she said. Bob Bartholomew, the finance director of the City and Borough of Juneau was in the audience, listening. “That’s not a bridge,” he said afterward. “That’s saying if you want to raise taxes locally, we won’t do it at the state level. That’s probably more of a pothole than a bridge.” On March 29, the Senate Finance Committee rolled out four bills intended to increase municipalities’ share of the Public Employees Retirement System and the Teachers Retirement System. Those two systems, paid jointly by the state government, local governments and employees, are used across the state but have suffered a multibillion-dollar shortfall. People are living longer, health care costs are rising, and when the plans were created, not enough money was saved. Now they’re billions of dollars short of the money they need to pay for benefits promised to retirees. The state and local governments have renovated the retirement systems and paid down the debt that looms over government like an avalanche chute above a mountain town. Now, the Legislature is addressing the immediate problem of a multibillion-dollar deficit by pushing off some of the responsibility for the long-term pension problem. Senate Bill 207 calls for increasing local governments’ contribution to teacher retirement from 12.56 percent to 22 percent by 2019. That would save the state $46.3 million in fiscal year 2017, which starts July 1. The savings rise each year, reaching more than $110 million by 2021, according to an analysis provided by the Legislative Finance Division. Senate Bill 209 calls for increasing the local contribution to public employee retirement from 22 percent to 26.5 percent by 2018. That would save the state $24.2 million next year, a figure that rises to $53.6 million by 2024, according to an analysis provided by the Legislative Finance Division. To gradually phase in the increase, the Senate Finance Committee has proposed two other bills: Senate Bill 208 and Senate Bill 210. Each intends to give communities a means to raise revenue and offset the increased costs from the other two bills. “It’s not our intent to abdicate responsibility,” said Sen. Pete Kelly, R-Fairbanks and co-chair (with MacKinnon) of the Finance Committee. SB 208 eliminates most of the state’s college scholarship programs for high-school graduates, then diverts much of the funds for those scholarships. About $36.5 million per year would be given to communities across the state to compensate for increases in the cost of teachers’ retirement. In the first year of increases, that money plus some extra from a different bill would almost equal the local cost increase for teacher retirement. The $36.5 million would continue for four more years, continuing to offset the increase to a lesser and lesser degree with each year. Communities would have to come up with the rest, either by cutting their own spending or raising taxes. To compensate for the rise in public employee retirement costs, SB 210 permits municipalities to increase property taxes on senior citizens. The bill erases the mandatory $150,000 property tax exemption for Alaskans over 65 (currently, the first $150,000 of a home owned by a senior is exempt from property taxes) and makes it optional. For smaller communities that don’t have a large property tax base, SB 210 reformulates the state’s revenue sharing program, taking money away from larger communities and raising the minimum for smaller ones that rely on that program to a larger degree. The exact fiscal impact of the four bills, which rely on each other in the same way a suspension bridge does, is not yet clear. The Finance Committee is still waiting on final numbers from a state actuary. Municipalities are also waiting for those final numbers, but Bartholomew said initial figures indicate the impact on the City and Borough of Juneau will be significant. If all four bills become law in their present form, the CBJ would have to pay approximately $1.9 million more for retirement in fiscal year 2017, which starts July 1. By fiscal year 2019, the CBJ would be paying $3.5 million more. Bartholomew and Senate Finance members pointed out, however, that future payments would depend on appropriations by future legislators. The four bills remain in the Senate Finance Committee. If approved there, they would face a vote of the full Senate and comprehensive vetting in the House. Contact reporter James Brooks at [email protected]  

Senate passes budget version; attention turns to revenue

JUNEAU — The Alaska Senate voted 16-4 on Monday to approve an $8.73 billion state operations budget that includes $571 million in cuts and sets up the full Legislature to begin a debate on taxes. The Senate’s budget will be combined with an $8.66 billion version the House passed last week. A final, compromise version of the budget is not expected until the end of the Legislative session, after lawmakers have figured out how to pay for it. With the state considering a $3.7 billion deficit due to low oil prices, the next question is whether to cover the deficit with savings from the $8.2 billion Constitutional Budget Reserve or to come up with additional revenue from taxes or the earnings of the Alaska Permanent Fund. As in the House, the Democratic-led minority on Monday attempted to amend the budget to address what it saw as problems with the bill drafted by the Republican-led majority. As in the House, all the amendments were resoundingly defeated. “This budget still leaves unscathed hundreds of millions of dollars in corporate welfare,” said Sen. Bill Wielechowski, D-Anchorage. “These are tough financial times for Alaska, but when the boat takes on water, you shouldn’t be throwing overboard foster kids.” Sen. Pete Kelly, R-Fairbanks and co-chairman of the Senate Finance Committee, said the thinner budget means the “people of Alaska are somewhat assured we’re somewhat committed to cutting the budget” before approving taxes or spending from the earnings of the Permanent Fund. He also said the Senate is passing its version of the budget early, so it has time to consider revenue. “We’ve never even been close to operating on this timeline,” he said. The House and Senate budgets are similar in amount, but they differ under the hood. Speaking in the Senate Finance Committee last week, Kelly said the Senate decided to forego some budgeting strategies used by the House. To reduce the amount of money the Legislature needs to find this year, the House plans to roll money left over from last year into a handful of state trust funds, then use those trust funds to pay for some operations. That plan, which includes $288 million in “found” money left in the Statutory Budget Reserve, was decried as a “shell game” by a pair of House lawmakers, and the Senate decided against the House’s approach. “It has been our intent to make the budgeting as simple or transparent as possible,” Kelly said. Instead, the Senate plan calls for spending about $342 million to pay down the state’s debt to the Teachers Retirement System and the Public Employee Retirement System. That will save between $16 million and $20 million per year in debt service payments, Kelly said. The Senate budget also provides more funding to the Alaska Seafood Marketing Institute and state tourism marketing than the House version does. The Senate budget provides more money for pre-kindergarten programs, and it does not fund a $30 million grant program for substance abuse treatment and prevention that was included in the House. The House version of the budget includes millions in inflation-proofing for the Alaska Permanent Fund; the Senate version does not. The House version makes steeper cuts to the University of Alaska; the Senate version includes $100 million in undesignated cuts. According to a legal memo provided to Sen. Dennis Egan, D-Juneau, those undesignated cuts could be unconstitutional. The Senate budget could have included significant cuts to the state’s big-ticket construction projects, but each of the Senate minority’s amendments in that regard were defeated. The minority repeatedly suggested the state should divert previously authorized money for the Ambler Road, Knik Arm bridge, Susitna-Watana dam, and other construction projects to things like community revenue sharing, grants for seniors, and public broadcasting. Each time, the majority said no. The closest vote came when Egan proposed diverting money from an Anchorage road project to the Alaska Marine Highway and state revenue sharing, which sends money to hundreds of towns and cities across the state. “The marine highway system is not a choice or convenience ... it’s vital for our region’s commerce and transportation,” Egan said. Egan’s amendment was defeated 6-13, with the minority joined by Sen. Gary Stevens, R-Kodiak, and Sen. Bert Stedman, R-Sitka. Sen. Donald Olson, D-Golovin, walked out of the room for the vote. At the end of the floor session, Egan was one of the four votes against the full budget. “I just really am deeply disappointed in what they did to the marine highway system,” he said. “The ferry system has taken a disproportionate cut, and I really think they ought to be fairer.”   Contact reporter James Brooks at [email protected]  

Alaska House passes $8.66 billion budget

JUNEAU — The Alaska House of Representatives worked into the early hours of Friday morning before passing an $8.66 billion state operations budget that includes $639.6 million in cuts from the current fiscal year. A majority of lawmakers turned down all 31 budget amendments that came before them, which meant the budget that passed the full House was the same one approved by the House Finance Committee earlier this week. Most amendments were declined along caucus lines. All were suggested either by independent Republican Lora Reinbold of Eagle River or the Democratic-led House minority. All were opposed by the Republican-led House majority. “Nobody gets exactly what they want, and that’s the budget reality,” said Rep. Mark Neuman, R-Big Lake and co-chairman of the Finance Committee, about 2 a.m. Friday. “Some think we’ve cut too much; others think we haven’t cut enough.” The final house vote was 24-14 and came at 3:10 a.m. Friday morning. The budget becomes effective July 1, but it likely will undergo significant changes before then. The Alaska Senate is expected to pass a competing budget this weekend. Neither branch of the Legislature is expected to approve the other’s budget, which means the two different plans are bound for a conference committee that will create a compromise plan. That plan is not expected to be complete until the end of the 90-day Legislative session. Friday is the 53rd day of the session. The budget is only a spending plan: With the state running a deficit of about $3.7 billion, lawmakers still have to come up with a way to pay for it. “This is only part of the process. We also have some other pieces of legislation out there,” said Rep. Sam Kito III, D-Juneau. “We have some other things to be considered before we have a budget that is paid for. This budget doesn’t have the money to pay for it.” To pay for state operations, the Legislature may pass any of several proposed tax increases or spend some of the investment earnings of the $50 billion Alaska Permanent Fund. Lawmakers could also choose to cover this year’s deficit with money from the $8.21 billion Constitutional Budget Reserve.

Lawmaker decries a ‘shell game’ in budget process

JUNEAU — The normally staid process of budget amendments was disrupted March 8 afternoon as Anchorage Republican Lance Pruitt exclaimed that his fellow lawmakers seemed to be playing a budgetary “shell game” after a legislative staffer revealed the state’s Statutory Budget Reserve savings account contains $288 million. The account was thought to be drained in 2015. “We’re cutting people left and right, I’m taking huge hits on what we’re doing for the vulnerable, and we just found $288 million in the couch cushions?” said Rep. Lynn Gattis, R-Wasilla and a member of the committee. The $288 million remains because the state cut more spending than thought in previous fiscal years, and its investments earned more money than it expected. The money is in the Statutory Budget Reserve, one of the state’s most easily accessible savings accounts. “We assumed the SBR would be virtually depleted” at the end of the 2015 fiscal year, said Pat Pitney, director of the state Office of Management and Budget. When it wasn’t, the discovery didn’t come in time for the state to include it in the current fiscal year 16 budget. The governor’s office instead quietly revealed the discovery in its supplemental budget proposal, released earlier this session. Pitney said the discovery wasn’t concealed, it just wasn’t trumpeted. The figure amounts to less than a month of state operations. The supplemental budget, part of the normal budget process, includes all the items that come up after the normal budget is finalized — things like natural disasters and, in this case, the buyout of Alaska LNG Project partner TransCanada. In a special session last year, the Legislature approved up to $500 million supplemental spending from the Constitutional Budget Reserve, a protected savings account. In a normal year, the Legislature would use the “found” $288 million first, then turn to the Constitutional Budget Reserve if they needed more, which requires a three-quarters vote in both the House and Senate. This time around, lawmakers are reversing that order, effectively allowing them to spend more. “If you look back at the supplementals, we’re going to go from a $4.9 billion budget coming out of session last year to $5.6 billion,” Pitney said. Pruitt and Gattis, members of the House Finance Committee, are among the legislators considering 45 amendments to a budget plan being drafted by the committee. The budget is expected to be voted upon by the full House later this week, then it will be blended with a budget coming from the Senate later this session. The comments by Pruitt and Gattis came as the committee considered an amendment establishing a new $30 million grant program to pay for drug abuse treatment. The grant program would be paid with money allocated in the 2016 fiscal year, which is more than half complete. The budget currently under consideration is for the 2017 fiscal year, which starts July 1. That would mean the program’s expenses wouldn’t show up in the current budget. “The program itself may be a good program,” Pruitt said, but the Legislature should abide by “truth in budgeting.” During a break in the hearing, he declined to comment further except to say, “There are creative differences.” Rep. Mark Neuman, R-Big Lake and co-chairman of the House Finance Committee, went into a closed meeting during the break and could not be reached before press deadline. Pitney said the Legislature appears to be trying to minimize general fund spending in the fiscal year 2017 budget at the expense of the fiscal year 16 and fiscal year 18 budgets.

Proposed mining tax increase gets poor reception at Feb. 19 hearing

JUNEAU — Miners opposed to a proposal by Gov. Bill Walker to raise taxes on the state’s top-producing mines got help from an unexpected source Feb. 19. Alongside the miners testifying against the tax increase was Graham Neale, director of the center for mine training at the University of Alaska Southeast. “Now is the time to evaluate how the state can attract investment,” Neale said, explaining that a tax increase might do the opposite. If mine developers are frightened away from Alaska by higher taxes, that would leave students of his program without jobs. “We could be putting Alaskans on pathways to careers that don’t exist,” he said. Higher taxes, if they reduce business, could end up reducing state revenue, not increasing it, Neale and others said. Several members of the Alaska House Resources committee, which was hearing public testimony on House Bill 253, appeared surprised by Neale’s testimony. “Your testimony is interesting,” said Rep. Andy Josephson, D-Anchorage, and a member of the committee. “You could take just that testimony and describe the entire session that way.” He went on to ask how to balance the fact that an employee of the University of Alaska Southeast, a state-funded institution, was arguing for a decrease in a tax that (as drafted) would earn about $6 million more per year for the state budget. Neale replied that the mine-training program is primarily funded by donations and gifts from industry, plus federal grants. It receives little state funding, he said. Neale declined to offer an alternative to the mining tax when prodded by Josephson and Rep. Geran Tarr, D-Anchorage, and he said he wasn’t comfortable talking about whether the higher tax is competitive or not. After the hearing, Neale said, “basically, my job is to put other people to work. If mining activity or new mines are discouraged, it’s pretty hard to find work.” For the past several years, Neale has worked as project manager of Niblack, a gold-silver-zinc-copper mine prospect on Prince of Wales Island. With declining mineral prices worldwide, that project has been put on the back burner. Neale also serves as chairman of the Ketchikan/Prince of Wales chapter of the Alaska Miners Association. He said he doesn’t think his testimony will hurt the mine-training center’s relationship with other UAS departments, which are supported by state funding. In addition to Neale, 13 others testified for and against the governor’s proposal during the two-hour hearing. HB 253 would raise the tax rate for the largest mines (those with a net income of $100,000 or greater) from 7 percent to 9 percent. Only 14 mines were in that tax bracket in 2014, according to state records. The 3½-year tax exemption for new mines would be eliminated, and there would be a fee for tax licenses, something that would affect mines of all sizes. According to state documents, the existing mining tax collected $38.6 million in 2015. The increase would collect another $6 million per year. Miners and industry advocates said that sum isn’t worth the harm that would be done to the state by the tax increase. “This could not have been proposed at a worse time in the past 45 years,” said professional geologist Donald Stevens of Anchorage. The slowing Chinese economy has meant less demand for minerals, which has deflated global prices and led producers to scale back mining efforts. A tax increase, testifiers said, would exacerbate problems and lead companies to invest in places other than Alaska. “Alaska competes worldwide for capital, and I saw this firsthand in Anglo-American’s boardroom in London,” said Jason Brune, who was laid off from his job as a spokesman for Pebble Mine after Anglo-American withdrew from the project. He now works for Southcentral Alaska Native Regional corporation Cook Inlet Region Inc. “I was a casualty of higher costs,” Brune said. Josephson pointed out during the hearing that the mining tax hasn’t changed since 1955, before the Alaska Constitution was written, let alone before Alaska became a state. “We haven’t changed the tax since right after the Korean War,” he said. Randy Powelson, a mining engineer now working at a family-owned placer mine, said that doesn’t tell the whole story. The federal and state regulatory burden has risen, even if taxes haven’t. “Maybe it hasn’t changed since 1955, but I’ll guarantee you that everything else in the world has, and it’s making you uneconomical,” he said. In response to questioning from Rep. Paul Seaton, R-Homer, Nome placer miner Doug Tweit said a $200,000 lower limit for the top tax bracket might make more sense. Though most of the comments Feb. 19 were against the proposed tax hike, two commenters supported the governor’s proposal. George Pearce of Kasilof urged committee members to “get the best deal for the Alaskans, not the destroyers of the renewable resources like fish, water, habitat,” while Julia Mickley of the Northern Alaska Environmental Center said “development doesn’t come without a cost, and the public should be compensated for minerals removed from the land.” The bill was held in committee after the hearing, and committee co-chairman Rep. David Talerico, R-Healy, said people who didn’t testify Feb. 19 will get another chance. “We certainly don’t expect this to be the only public testimony on this bill,” he said.

In address to Legislature, Murkowski stresses 'certainty'

Alaska’s senior U.S. Senator didn’t offer her advice on solving the state’s fiscal problems. Speaking to a joint session of the Alaska Legislature, Sen. Lisa Murkowski said the Legislature has enough people offering advice. Instead, she offered a report on the work of the Alaska Congressional delegation over the past year, highlighting its efforts to reduce federal restrictions on state and business activities while providing certainty that new regulations and restrictions will not come in the future. “I hope this is your takeaway from my comments — that what I’m trying to do is help with that level of certainty at that federal level,” she said. Murkowski faces re-election this fall but no serious opposition yet. Republican Thomas Lamb of Anchorage is her only primary election opponent, while Libertarian Cean Stevens of Anchorage and Independent candidate Margaret Stock would face Murkowski in the general election. Speaking to legislators, Murkowski said the Senate has “returned to what we call regular order” since the election of a Republican majority in 2014. In addition to a replacement for the No Child Left Behind Act, the Senate has approved a bill funding transportation projects for several years. Federal military spending legislation also calls for more than a half-billion dollars in construction within Alaska. “An effort like this doesn’t happen by accident,” she said, calling attention to the work of her junior counterpart, Sen. Dan Sullivan, R-Alaska, and Rep. Don Young, R-Alaska and the 49th state’s only delegate in the U.S. House of Representatives. In regard to veteran care, “we’re making some headway, but the fight’s not over,” Murkowski said. When it came time to discuss federal land ownership and the federal government’s relationship with the state, Murkowski pointed out John Sturgeon, who was observing the speech from the House gallery. Sturgeon has sued the Department of the Interior in a case now in front of the U.S. Supreme Court over whether the state or the federal government has jurisdiction over rivers within federal parcels. “If the court should not come to the right decision,” Murkowski said, referring to a Sturgeon victory. “I’m prepared to crack open ANILCA (the Alaska National Interest Lands Conservation Act).” In fisheries, Murkowski discussed efforts to require the labeling of genetically engineered salmon, the proper labeling of Russian pollock, and laws against “pirate” fishing in federal waters. “These help to bring about certainty within an industry that needs it,” she said, returning to the theme of her speech. With the death of U.S. Supreme Court Justice Antonin Scalia, the Senate will be asked to confirm his replacement — an as-yet unidentified person selected by President Obama. That person, Murkowski said, “should get a hearing.” She then added, “that doesn’t necessarily mean that ends up in a vote.” The person could be found unqualified and rejected by the Senate without a vote, she said. Overall, she said, she hopes the president finds someone who keeps the court in balance, an allusion to Scalia’s habit of ending up on the conservative side of many rulings. “It’s clearly in Alaska’s best interest to maintain balance on the highest court in the land,” she said. Murkowski declined to state her preference in the contest for the Republican presidential nomination (Alaska’s preference poll is March 1), and she added, “I will defer from saying that I don’t like somebody, because I don’t think that is a fair approach.” She did say that she thinks the eight years of the Obama administration has “not been good for our state, and I’m not seeing it reflected in the overall strength of our economy” or in the “strength of our nation from a geopolitical perspective.” Based on a comment from the president’s chief of staff, she said she is particularly concerned about new executive actions that could be taken by the president in his final months in office. “This last year could be a bit scary for us,” she said. Contact reporter James Brooks at 523.2258 or at [email protected]  

McGuire’s bill to use Permanent Fund earnings gets hearing

JUNEAU — For 13 months, Sen. Lesil McGuire, R-Anchorage, has been working on a plan to use Permanent Fund earnings to partially balance Alaska’s state budget. In form and function, McGuire’s plan (formally, Senate Bill 114) introduced late in the 2015 session, resembles the one brought forward by Gov. Bill Walker late last year. “With my plan, you’ll bring in approximately $2 billion, and that will put you on a glidepath (to balancing the budget),” she told members of the Senate State Affairs Committee on Feb. 9. She added that “mine is not a whole plan,” and while it would eliminate a substantial chunk of the state’s deficit, additional taxes and further cuts will be needed to balance the annual budget. “This is only meant to stabilize one part,” she said. State Revenue Commissioner Randy Hoffbeck said the governor’s staff and McGuire’s staff used the same financial models and budget figures, and that any similarities aren’t coincidental. “Quite frankly, I think all the plans out there have the same essential target in mind,” Hoffbeck said. The principal difference between the two plans is their emphasis. The governor’s plan is designed to provide $3.3 billion per year to fund state government, but after its first year, Permanent Fund Dividends would be about $500 per person. Senate Bill 114 has a minimum $1,000 dividend, and it provides only about $2 billion per year for state operations. If oil averages $56 per barrel this fiscal year (July 1, 2015, through June 30, 2016), the state’s annual deficit will be about $3.5 billion. Through Feb. 8, oil has averaged $47.08, which puts the deficit at roughly $3.7 billion. McGuire said her bill “still leaves open the conversation for restructuring the size and cost of government.” The mechanics of McGuire’s plan are relatively simple. Right now, investment earnings from the $50 billion Permanent Fund end up in the Earnings Reserve account. That account pays dividends but otherwise accumulates interest and grows. Right now, it contains about $7 billion. While no one can spend from the Permanent Fund proper without a statewide vote, lawmakers can spend from the Earnings Reserve with a majority vote. McGuire’s plan would set up an annual transfer of 5 percent of the Permanent Fund’s value from the Earnings Reserve to the state budget. If the Permanent Fund’s $50 billion principal account earns more than 5 percent when invested on global markets, the system holds up. Dividends, instead of coming from the Earnings Reserve, would come from the state’s annual oil royalty check. Three-quarters of the state’s oil royalties (last year, about $961 million) would be devoted to dividends. The remaining quarter of the state’s oil royalties would go into the Permanent Fund principal. If implemented this year, McGuire’s bill would result in a dividend of a little more than $1,000. If not implemented, the traditional dividend formula (based on the Permanent Fund’s investment returns) is expected to result in a dividend of more than $2,000. One thousand dollars is “still a big dividend,” McGuire said, adding that in a state whose economy is dependent upon government spending, it’s important to keep the state budget balanced and stable. “The Permanent Fund Dividend is important,” she said, “but it’s not the only thing that’s important. Even Republicans can say that.” The Senate State Affairs Committee will meet again on Feb. 11 to hear legal analysis of the governor’s Permanent Fund earnings plan.

Administrators favor scrapping new standardized tests

JUNEAU — After almost four years of preparation and planning, plus millions of dollars in implementation, Alaska’s new standardized testing scheme appears bound for the garbage can less than two months before students take it the second time. On Jan. 25, Lisa Skiles Parady, director of the Alaska Superintendents Association, told the Alaska Board of Education and Early Development that a majority of the state’s school district leaders favor abandoning the Alaska Measures of Progress testing scheme. The AMP test was administered to Alaska students for the first time last year under a $5 million per year contract with the Assessment & Achievement Institute of Kansas. Parady presented the results of a superintendent survey that found only five of 42 responding superintendents favored continuing AMP testing. Twenty-three of the 42 said they do not support continuing AMP. The 42 superintendents represent about 80 percent of Alaska’s school districts. Deena Paramo, superintendent of the Mat-Su Borough School District, participated in the meeting by telephone and called AMP testing a “failure” that “does harm” to Alaska’s school system because it does not provide useful feedback to teachers or administrators. In an October memo, the Mat-Su school district declared: “the AMP summative assessment is useful for state compliance purposes only. There is no value to districts from the assessment, and in fact learning opportunities are lost as a result of having to administer the assessment.” Speaking during the meeting, Alaska Education Commissioner Mike Hanley said “there’s nobody more frustrated with AMP than I am.” Hanley, who has been commissioner of education since 2011, oversaw three years of preparation before students took the test for the first time last year. Teachers, administrators and parents helped draft the test, which was prepared for “Alaska’s unique needs” and offered a tougher, more accurate, measurement of students’ knowledge, according to promotional material last year. While testing went well, problems came afterward. “We had glitches in the data, we had glitches in the timing,” Hanley said. Results came back from AAI much later than had been promised, and they didn’t offer the diagnostic information that schools were hoping for. Marianne Perie, AAI’s Alaska project manager, told the Fairbanks Daily News-Miner in November that the company had made mistakes. Perie did not respond to interview requests by this story’s deadline. “One of the most accurate comments was just there was such a loss of confidence in this tool that I don’t know how to get it back,” Hanley said. While Hanley and district superintendents might be frustrated, they have few options at the moment. While Congress has approved and President Obama has signed legislation that replaces the No Child Left Behind Act, the state is still required by state and federal law to conduct standardized assessments. “I just see no other option to meet the letter of the state and federal laws” than to have students take AMP tests this year, said state school board member Barbara Thompson of Douglas. Hanley said that even though it appears the state is locked into AMP testing this spring, he doesn’t plan to wait on replacing it. “I’m not interested in continuing down a path that’s not working,” he said. Rather than immediately seeking alternative proposals from competing testing companies, Hanley said he likely will begin by consulting with school districts to determine what approach works best for them. “Let’s not wait to pursue a new path forward,” he said. The state’s arrangement with AAI is structured as five one-year contracts, Hanley said, and he will gather information to determine the final choice the state takes this summer. In related business, the school board voted unanimously (member Sue Hull absent) to take the first step to cancel a program that would have tied teacher evaluations to students’ test scores.

Marine Highway fleet needs to downsize by two vessels

JUNEAU — An Alaska Marine Highway System leader gave the clearest statement yet that the ferry system will soon sell two of its 11 ships. Speaking to the House Transportation Committee, Deputy Transportation Commissioner Captain Michael Neussl said it makes little sense for the ferry system to own 11 ships when it only has the funding for nine. “The fleet size, in my estimation and opinion, needs to shrink back,” he told the committee Jan. 21. “We will need to divest of some vessels, and we need to start looking at that sooner, rather than later.” Neussl oversees the Marine Highway System for the state Department of Transportation and Public Facilities. His contention is based on what the ferry system calls “operating weeks.” One ferry running for one week is one operating week. If all 11 ferries are running in a given week, the system is providing 11 operating weeks. In the current fiscal year, which began July 1 and runs through June 30, the ferry system has scheduled 357.5 operating weeks. According to AMHS figures, that’s the fewest number of operating weeks since 2005, when the ferry system provided 349 operating weeks with 11 ships. The governor’s current budget proposal includes a $5 million cut to ferry system operations in the next fiscal year. With that cut, the Marine Highway expects to reduce its service to 320 operating weeks, a level not seen since 2004. If the Alaska Legislature elects to cut the Marine Highway budget beyond what the governor has suggested – something that appears possible, if not likely, considering lawmakers’ comments – that service would be reduced further. Between 2000 and 2003, the Marine Highway offered between 291.7 and 326.6 weeks of service with just nine ships. Lawmakers didn’t dismiss Neussl’s proposal out of hand, and some appeared positive about the idea, speculating on which ships should be sold. Rep. Matt Claman, D-Anchorage, suggested the Fairweather and Chenega might be at the top of the list. “Maybe we should be selling the fast ferries first,” he said. Judging by their maintenance and operation cost, “it certainly seems like those should be at the top of the list.” Neussl replied that getting rid of the fast ferries is “certainly an option,” but the first pick would likely be the ferry Taku, which has been laid up for lack of funds since last year, and is 53 years old. The fast ferries are less than 20 years old. In response to a question from Rep. Louise Stutes, R-Kodiak, Neussl said the Marine Highway will not get rid of the ferry Tustumena – one of the few vessels able to serve Kodiak, the Alaska Peninsula and the Aleutians – until a replacement is built. “We like to say the Tustumena is approaching its twilight years,” Neussl said. “It is not there yet.” Before a new Tustumena is built, however, the ferry system will take into service two new Alaska-class ferries for Lynn Canal service between Juneau, Haines and Skagway. Those boats, expected to enter service in 2018, would bring the Alaska fleet to 13 ships if none were sold off beforehand – a fleet definitely beyond the means of the state’s current budget. Speaking in committee, Rep. Shelley Hughes, R-Palmer and co-chairwoman of the Transportation Committee, speculated that a nine-ship fleet might resemble the ferry system of a decade ago. “Ten years ago, it wasn’t quite so bad; we had a pretty good state 10 years ago,” she said. “We can do this; it’s going to be OK. You’ll still be able to get from Point A to Point B.”  

Administrators favor scrapping new standardized student tests

JUNEAU — After almost four years of preparation and planning, plus millions of dollars in implementation, Alaska’s new standardized testing scheme appears bound for the garbage can less than two months before students take it the second time. On Tuesday, Lisa Skiles Parady, director of the Alaska Superintendents Association, told the Alaska Board of Education and Early Development that a majority of the state’s school district leaders favor abandoning the Alaska Measures of Progress testing scheme. The AMP test was administered to Alaska students for the first time last year under a $5 million per year contract with the Assessment & Achievement Institute of Kansas. Parady presented the results of a superintendent survey that found only five of 42 responding superintendents favored continuing AMP testing. Twenty-three of the 42 said they do not support continuing AMP. The 42 superintendents represent about 80 percent of Alaska’s school districts. Deena Paramo, superintendent of the Mat-Su Borough School District, participated in the meeting by telephone and called AMP testing a “failure” that “does harm” to Alaska’s school system because it does not provide useful feedback to teachers or administrators. In an October memo, the Mat-Su school district declared: “the AMP summative assessment is useful for state compliance purposes only. There is no value to districts from the assessment, and in fact learning opportunities are lost as a result of having to administer the assessment.” Speaking during the meeting, state schools commissioner Mike Hanley said “there’s nobody more frustrated with AMP than I am.” Hanley, who has been commissioner of education since 2011, oversaw three years of preparation before students took the test for the first time last year. Teachers, administrators and parents helped draft the test, which was prepared for “Alaska’s unique needs” and offered a tougher, more accurate, measurement of students’ knowledge, according to promotional material last year. While testing went well, problems came afterward. “We had glitches in the data, we had glitches in the timing,” Hanley said. Results came back from AAI much later than had been promised, and they didn’t offer the diagnostic information that schools were hoping for. Marianne Perie, AAI’s Alaska project manager, told the Fairbanks Daily News-Miner in November that the company had made mistakes. Perie did not respond to interview requests by this story’s deadline. “One of the most accurate comments was just there was such a loss of confidence in this tool that I don’t know how to get it back,” Hanley said. While Hanley and district superintendents might be frustrated, they have few options at the moment. While Congress has approved and President Obama has signed legislation that replaces the No Child Left Behind Act, the state is still required by state and federal law to conduct standardized assessments. “I just see no other option to meet the letter of the state and federal laws” than to have students take AMP tests this year, said state school board member Barbara Thompson of Douglas. Hanley said that even though it appears the state is locked into AMP testing this spring, he doesn’t plan to wait on replacing it. “I’m not interested in continuing down a path that’s not working,” he said. Rather than immediately seeking alternative proposals from competing testing companies, Hanley said he likely will begin by consulting with school districts to determine what approach works best for them. “Let’s not wait to pursue a new path forward,” he said. The state’s arrangement with AAI is structured as five one-year contracts, Hanley said, and he will gather information to determine the final choice the state takes this summer. In related business Tuesday, the school board voted unanimously (member Sue Hull absent) to take the first step to cancel a program that would have tied teacher evaluations to students’ test scores. Tuesday’s vote opens a public comment period on a proposal to cancel a one-year prototype phase of the evaluation program. Revisions to the No Child Left Behind Act had required states to begin tying teacher evaluations to student scores starting in the 2015-2016 school year, but Congress replaced No Child Left Behind in December with a law that eliminates the requirement.

At State of the State, Walker sells teamwork as necessary to beat deficit

JUNEAU — It was Salesman Walker who spoke from the podium Thursday night in the Alaska Capitol. Delivering his second State of the State address, Gov. Bill Walker used humor, metaphor and anecdote to outline his plan for solving the state's $3.5 billion deficit, then requested the Legislature's help implementing that plan. "We will not be able to accomplish what we need to do without working together," Walker said. The core of Walker's proposal is the New Sustainable Alaska Plan, an idea unveiled in the fall that turns the Alaska Permanent Fund into a money factory whose earnings partially fund state government. Permanent Fund Dividends would continue but be linked directly to state oil and gas revenue, rising and falling with global prices. On its own, that proposal isn’t enough to erase the deficit, barring a sudden and drastic rise in oil prices. Walker proposes a range of tax increases affecting gasoline, cigarettes, alcohol, mining, fisheries and tourism. Walker also proposes a state income tax based on a percentage of each Alaskan's federal income tax payment. In his speech, Walker said his plan is "written in pencil" and may be changed by lawmakers, but something must be done now. "As governor, I am flexible on the details of a fiscal plan, as long as the outcome meets basic tests of fairness and sustainability. I am not flexible, however, on our need to get there this year," he said. He said he understands that suggesting taxes and changes to the Permanent Fund may not be popular. "To those who question my political wisdom, I admit I may not be politically savvy. But I am a loyal son of this great land, and as your governor, I will always put Alaska’s interests above my own." That remark garnered  the largest sustained applause of the night, and after the speech ─ which ended with a plea to "pull together" and a request for divine intercession ─ Rep. Cathy Munoz, R-Juneau, had it highlighted in her notebook. "It was the best gubernatorial (state of the state) speech I've heard, and this is my eighth," she said. "It inspired, it spoke to the strength of Alaskans working together. He used terrific analogy and terrific history of his own family experience and left me feeling really energized about the work ahead." Rep. Mark Neuman, R-Big Lake, was a bit more equivocal. "We're going to have to pull together, sure, but there's a lot of different opinions out there," he said. "I don't know where we're going to end up at the end of the day." Similarly, Sen. Pete Kelly, R-Fairbanks, said he thinks Walker's plan is "too complicated." Rep. Adam Wool, D-Fairbanks, was optimistic, even if the governor's plan isn't what the Legislature ultimately decides. "I think something's going to happen," he said. "I personally don't think we're going to kick the can." The Alaska Republican Party offered the harshest words after the speech, with spokeswoman Suzanne Downing writing, "What he said tonight sounded less like vision for the future, and more like a vision of bigger, bloated government, a reflection of the liberal Democrats to whom he is now beholden." Walker was interrupted by eight rounds of applause during his 49-minute address, with most applause coming as the governor touched on non-budget items. During his speech, Walker wore a pin on his lapel that showed an outline of Alaska with two pipelines. He made his most significant divergence from his prepared remarks to talk about the pin and his continued support for a natural gas pipeline, something that earned applause. The pipeline is expected to be an issue in a special session of the Legislature later this year. His policy pledges also included support for a prison reform bill introduced by Sen. John Coghill, R-North Pole, and a pledge to create a public integrity unit in the Alaska Department of Law. That department will "investigate officer-involved shootings, deaths in state custody and allegations of government corruption," Walker said. Most of his time at the podium, however, was focused on encouraging the Legislature to solve the state's budget crisis. "Now is the time to put aside politics as usual. Now is the time for bold steps and new beginnings," Walker said. "The state of our state is strongest when we pull together. This is the Alaska that I love. This is the Alaska I have always known."  

Marine Highway head proposes selling two ships from fleet

JUNEAU — An Alaska Marine Highway System leader gave the clearest statement yet that the ferry system will soon sell two of its 11 ships. Speaking to the House Transportation Committee, Deputy Transportation Commissioner Captain Michael Neussl said it makes little sense for the ferry system to own 11 ships when it only has the funding for nine. “The fleet size, in my estimation and opinion, needs to shrink back,” he told the committee Thursday. “We will need to divest of some vessels, and we need to start looking at that sooner, rather than later.” Neussl oversees the Marine Highway System for the state Department of Transportation and Public Facilities. His contention is based on what the ferry system calls “operating weeks.” One ferry running for one week is one operating week. If all 11 ferries are running in a given week, the system is providing 11 operating weeks. In the current fiscal year, which began July 1 and runs through June 30, the ferry system has scheduled 357.5 operating weeks. According to AMHS figures, that’s the fewest number of operating weeks since 2005, when the ferry system provided 349 operating weeks with 11 ships. The governor’s current budget proposal includes a $5 million cut to ferry system operations in the next fiscal year. With that cut, the Marine Highway expects to reduce its service to 320 operating weeks, a level not seen since 2004. If the Alaska Legislature elects to cut the Marine Highway budget beyond what the governor has suggested ─ something that appears possible, if not likely, considering lawmakers’ comments ─ that service would be reduced further. Between 2000 and 2003, the Marine Highway offered between 291.7 and 326.6 weeks of service with just nine ships. Lawmakers didn’t dismiss Neussl’s proposal out of hand, and some appeared positive about the idea, speculating on which ships should be sold. Rep. Matt Claman, D-Anchorage, suggested the Fairweather and Chenega might be at the top of the list. “Maybe we should be selling the fast ferries first,” he said. Judging by their maintenance and operation cost, “it certainly seems like those should be at the top of the list.” Neussl replied that getting rid of the fast ferries is “certainly an option,” but the first pick would likely be the ferry Taku, which has been laid up for lack of funds since last year, and is 53 years old. The fast ferries are less than 20 years old. In response to a question from Rep. Louise Stutes, R-Kodiak, Neussl said the Marine Highway will not get rid of the ferry Tustumena ─ one of the few vessels able to serve Kodiak, the Alaska Peninsula and the Aleutians ─ until a replacement is built. “We like to say the Tustumena is approaching its twilight years,” Neussl said. “It is not there yet.” Before a new Tustumena is built, however, the ferry system will take into service two new Alaska-class ferries for Lynn Canal service between Juneau, Haines and Skagway. Those boats, expected to enter service in 2018, would bring the Alaska fleet to 13 ships if none were sold off beforehand ─ a fleet definitely beyond the means of the state’s current budget. Speaking in committee, Rep. Shelley Hughes, R-Palmer and co-chairwoman of the Transportation Committee, speculated that a nine-ship fleet might resemble the ferry system of a decade ago. “Ten years ago, it wasn’t quite so bad; we had a pretty good state 10 years ago,” she said. “We can do this; it’s going to be OK. You’ll still be able to get from Point A to Point B.”

Legislature opens regular session as oil keeps plunging

JUNEAU — On Tuesday afternoon, Rep. Matt Claman, D-Anchorage, and Rep. Lance Pruitt, R-Anchorage, climbed the steps of the Capitol together with smiles on their faces. They traded jokes and walked into the waiting office of Gov. Bill Walker, who extended his hand for a shake. “What’s the good word?” Walker asked the men as they delivered the traditional announcement that the Alaska House of Representatives is in session. For the next 90 days ─ and likely longer ─ lawmakers will struggle to eliminate or at least contain the state’s $3.5 billion annual deficit. The true figure is likely larger, but the price of oil has been falling faster than the state’s ability to redraft the numbers. As of Friday, the price of a barrel of Alaska North Slope crude oil was below $30 ─ cheaper than the barrel itself. “We believe this may be the most challenging … legislative session in which any of us will serve,” said Sen. Berta Gardner, D-Anchorage, shortly after the Senate opened the second session of the 29th Alaska Legislature. “It will be a challenging year, but together we’ll get through this fine and Alaska will be a better state because of it,” Sen. Kevin Meyer, R-Anchorage and the Senate President, said after Gardner’s remarks. Walker, speaking to the Empire in his office, said the first week of the legislative session will set the tone for the details of the debates that follow. In October, the Walker administration unveiled a comprehensive plan to balance the state’s budget by turning the Alaska Permanent Fund into a money factory. Earnings from the fund would cover a portion of state operating expenses, while oil and mineral prices would fund a smaller and more volatile Permanent Fund Dividend, an inversion of the existing setup. The Walker plan wouldn’t cover all of the state’s needs: In December, the governor proposed a range of tax increases and budget cuts to do the rest of the work. On Tuesday, the Senate received 10 bills from the governor to implement his fiscal plan. That total does not include the three budget bills considered every year by the Legislature. Walker said he wouldn’t be disappointed if the Legislature throws out his suggestions and picks its own way to balance the state budget, but “it’s got to be a whole plan,” he said. “I don’t care who gets the credit on any of this.” He declined to speculate on what he will do if the Legislature chooses to pass a plan that does not balance the budget in the long term. “I always reserve my position on any bills,” he said about whether he would veto an incomplete plan. He added that it would depend upon “where we are” in regard to oil prices, spending cuts and additional taxes. On non-budget items, Walker said he thinks natural gas pipeline issues will require a special session to address. Health care reform and prison reform are other significant topics, but “every one of those things is affected if the money isn’t there,” he said. Hanging above everything the Legislature does this session are this fall’s elections. Ten members of the Senate and all 40 members of the House are up for re-election this year, but those contacted by the Empire were careful to say that the impending vote should not affect their work. “The election should have zero bearing on what we do this session,” said Sen. Bill Wielechowski, D-Anchorage. With elections every other year, lawmakers can’t shrug off choices simply because there’s an election. “You simply can’t have a legislature that refuses to make tough decisions every other year.” The Senate Finance Committee will open its work on those tough decisions at 10 a.m. Wednesday morning as Pat Pitney, the state budget director, presents an introduction to next fiscal year’s plan. The Legislature’s next big event will take place at 7 p.m. Thursday night as Walker delivers his State of the State address to a joint session of the Legislature. The speech will be broadcast by radio on KTOO-FM and on TV by Gavel Alaska. Legislators are also expected Wednesday at Juneau’s 31st annual Legislative welcome reception. That takes place 5-6:30 p.m. in Centennial Hall.

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