Budget Compromise Achieved, Alaska Government Shutdown Averted
By MARY KAUFFMAN
June 26, 2017
The Governor also amended the Second Special Session last Thursday with a second supplemental proclamation for the Legislature to address oil and gas subsidies, meaning the Legislature is still in session.
“I thank legislators for reaching a compromise on the operating budget to ensure government services continue after July 1,” Governor Walker said. “In doing so, they also appropriated a $1,100 permanent fund dividend (PFD) for each eligible Alaskan."
After more than five months in session, the Legislature hit an impasse on how to resolve the state’s ongoing deficit. Concerned with the private and public sector consequences of a looming government shutdown on July 1, Senate leaders earlier this month asked Gov. Walker to narrow lawmakers’ focus to the operating budget. Six days of intense negotiations resulted in a fully funded fiscal year 2018 operating budget that will keep Alaska open for business.
Earlier Thursday, legislators indicated in conference committee their intent to correct the state’s unsustainable oil and gas tax credit system. Walker said, "That’s why I am amending the call so legislators can complete work on House Bill 111. We must immediately address the subsidies we can no longer afford. It is the next critical component of a much needed compromise fiscal plan, and it must be addressed this year. When we have reduced PFDs for Alaskans, we cannot continue to give out millions of dollars in subsidies to oil companies.”
Governor Bill Walker said he was pleased the conference committee compromised on an operating budget, which means Alaska is one step closer to averting a shutdown of government services. Walker said, "Now, it is time to compromise on a fiscal plan.”The Alaska Legislature late last Thursday night delivered a reduced budget averting a government shutdown while protecting the Permanent Fund and future years’ dividends. The budget further reflected a core Alaska Senate Majority priority of reducing state spending and protected Alaskans from an income tax.
“The Senate Majority did not achieve everything on its agenda, but both sides compromised for the good of Alaska,” said Senate President Pete Kelly (R-Fairbanks). “The Senate and House worked together to deliver a reduced budget in time to avoid the high costs of a government shutdown. This budget makes necessary reductions in agency operations and protects the Permanent Fund and future dividends. We listened to Alaskans,” said Kelly.
Quoting a news release from the Senate Majority, the budget draws an estimated $2.4 billion from the Constitutional Budget Reserve (CBR). By keeping as much money as possible in the higher-earning Permanent Fund Earnings Reserve Account (ERA), the state will earn interest that in turn grows the Permanent Fund – saving the state an estimated $300 to $700 million, depending on the fund’s earnings. This structure also protects the Permanent Fund and future year dividends.
The FY 2018 operating budget represents $179 million less in undesignated general fund spending compared to FY 2017, and includes a $75 million reduction in agency operations. The budget fully funds K-12 education for FY 2018, and ensures each eligible Alaskan will receive a $1,100 Permanent Fund Dividend this fall. A long-term dividend amount is expected to be determined through future passage of Senate Bill 26.
The Senate Majority supports legislation eliminating cash credits for oil companies, and achieved intent language in the budget providing companies advance notice the state does not intend to pay credits for work done after Jan. 1, 2018. The compromise budget includes $57 million for credits already earned.
Senate Democratic Leader Berta Gardner (D-Anchorage) issued a statement on behalf of the members of the Senate Democratic Caucus saying, “As the second special session comes to a close, we have mixed emotions. While we are obviously very glad there will be no government shutdown, legislators shouldn’t congratulate ourselves for simply avoiding the worst-case scenario. This is the third year we have found ourselves in this position."
As the Senate Democratic Caucus Leader Gardner's said, "We cannot keep trying to fix our broken system by using the wrong tool over and over again. Rigid ideologies, and a lack of willingness to put everything on the table has gotten us into this mess. All sides must be willing to consider all options, not just give lip service, and not take things off the table before session even starts."
"So, while we are relieved that we’ve avoided the devastating effects of a government shutdown, we are unhappy that this budget does not reflect our values, and does not solve our problems in the long term. Had the Senate Majority approved the House’s budget that was before them last week, Alaskans would have received their full Permanent Fund Dividend checks this year. But as it stands the people of Alaska are balancing the budget from their own pockets, without the legislature asking anything of oil companies or out-of-state workers," said Gardner.
"The plan of cuts only has resulted in a flat-funded K-12 and a diminished university; it has promoted job losses and fiscal uncertainty; threatens our credit rating; makes our infrastructure and transportation less reliable; and we are rapidly heading to a version of the state where fewer and fewer people will want to live. Our caucus stands committed, again, to come to the table next session with open minds, and willing to discuss all options. If we are the only ones who feel this way, the legislature is doomed to repeat its mistakes," said Gardner on behalf of Senate Democrats.
“The compromise budget we passed [Thursday night] prevents a government shutdown and funds the essential state services that help drive our economy. Fisheries will continue uninterrupted, our airports will stay open, and Troopers will stay on the beat,” said Speaker of the House Rep. Bryce Edgmon (D-Dillingham). “However, the job is only half done. We now call on the Senate Majority to join us in enacting a comprehensive fiscal plan.”
Quoting a news release, members of the Alaska House Majority Coalition stand at the ready to continue the work left unfinished. That includes the FY 2018 Capital Budget, legislation to create a sustainable draw on Permanent Fund earnings, reforms to Alaska’s oil tax regime, and new broad-based revenues.
“There is overwhelming evidence that the best way to protect our economy is to diversify our revenue and take away some of the volatility that comes from relying on the fluctuating price of oil or the inherent ups and downs in the stock market,” said House Finance Committee Co-chair Rep. Paul Seaton (R-Homer).
Seaton said, “The budget we passed [Thursday night] prevents a government shutdown and keeps Alaska up and running. However, it’s an incomplete solution that continues the unsustainable budgeting of the past four years. Hopefully, with the operating budget out of the way, the Senate Majority will be good to their word and give serious consideration to the comprehensive fiscal plan we successfully passed through the House.”
The compromise budget that passed laste Thursday night reversed $14 million of the $22 million in additional cuts to the University of Alaska advanced by the Alaska State Senate. The $6 million cut to Pioneer Homes put forward by the Alaska Senate Majority was also reversed.
In total, according to the Alaska House Majority Coalition, the compromise budget cuts $128.7 million from FY 2018 agency and statewide operations compared to the FY 2017 budget. The FY 2018 cut is $23 million more than the cut in the budget that originally passed the Alaska House of Representatives in March.
“Preventing a government shutdown was of the utmost importance and I am pleased all sides could finally agree on a budget that avoids that,” said House Rules Committee Chair Rep. Gabrielle LeDoux (R-Anchorage). “I know that we have the tools, and continue to believe the Legislature has the will to put in place the kind of comprehensive fiscal plan credit-raters, economists, and other experts have endorsed. The urgency lawmakers felt the last few days to reach a budget deal is the same kind of urgency needed in the coming days and weeks to solve Alaska’s fiscal crisis and equip our economy to succeed. What Alaska needs right now are leaders, not lawmakers comfortable with kicking the can down the road.”
Last Thursday’s budget compromise was put in place by the Conference Committee appointed to work out the differences between the competing versions of the budget bills passed by the House and Senate. The Conference Committee wrapped up work earlier Thursday and sent the compromise version of HB 57 to the two bodies for consideration.
The Alaska House of Representatives passed HB 57 by a vote of 31-8. The Alaska Senate passed the bill by a vote of 16-1. The bill will be sent to Governor Bill Walker for consideration.
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