Governor Releases Fiscal Year 2018 Budget
$4.2 Billion Operating Budget;
Once again, the Governor proposes to use some of the earnings of the Alaska Permanent Fund to pay for essential state services and Walker’s fiscal package also includes a proposed increase to the motor fuel tax. The proposed fiscal year 2018 budget highlights previous reductions in state spending, a reintroduction of previous legislation to use the Permanent Fund Earnings Reserve account to help fund state government, and a statewide motor fuels tax. The remaining $890 million gap is left to be addressed by the Alaska legislature during the upcoming legislative session.
“We have reduced state spending by more than $1.7 billion, and will continue to seek efficiencies and contain costs,” Governor Walker said. “We have closed dozens of state facilities across Alaska, impacting services Alaskans have grown accustomed to receiving. But Alaskans are increasingly looking for budget stability to protect Alaska’s economy. We can’t cut our way to prosperity. Since 2013, we have cut state spending by 44 percent. To fund services Alaskans rely on, it’s critical to discuss new revenue. We look forward to working with the legislature to pass a sustainable fiscal plan during the upcoming session.”
The Walker-Mallott administration’s three-part fiscal plan for this year’s budget is to 1) continue cutting the size of government; 2) re-plumb the state’s wealth through sustainable use of the Permanent Fund Earnings Reserve to ensure the dividend program continues while providing funding for essential state services; and 3) generate new revenue through broad-based taxes.
There are currently 2,500 fewer state employees than two years ago, and 400 more state jobs are expected to be eliminated by December 2017.
“When it comes to reducing the number of employees on the state payroll, we tried to minimize harm to the overall economy as well as give staff reasonable notice,” said Office of Management and Budget Director Pat Pitney. “Any time an Alaskan loses his or her job, it hurts Alaskan families and the ripple effect hurts Alaskan businesses.”
• Nearly all state workers will be required to take at least two unpaid days off (furlough days) and contribute more toward health care coverage. Automatic cost-of-living increases have been eliminated in all contracts negotiated to date.
• Governor Walker is proposing legislation to freeze remaining step increases for non-unionized employees, effective July 1, 2017. The bill is expected to reduce state spending by $10 million over two years.
• Starting July 1, 2017, Governor Walker will take a one-third salary reduction - about $48,000 less than the $145,000 set in statute. For the past 15 months, the Governor has declined per-diem payments while in Anchorage, and will continue to do so.
“While my pay cut will certainly not balance the state’s budget, I believe it is important to lead by example,” Governor Walker said. “These are tough times for many Alaskans and fixing the state’s deficit requires that we all make sacrifices and pull together.”
• The Alaska Department of Administration is currently working to consolidate common administrative functions, like accounting, facilities management and information technology through the Shared Services project.
• Each state agency has cut spending. The Department of Commerce, Community and Economic Development has seen the highest percentage reductions at 70 percent since Governor Walker took office. The Department of Health and Social Services saw the largest reduction in state funding at $150 million in spending reductions.
Governor Walker also halted all state spending on the Juneau Access Project.
Leveraging the State’s Wealth: Permanent Fund Protection Act
Governor Walker re- introduced the version of the Permanent Fund Protection Act (PFPA) that passed the Senate earlier this year. The bill creates a formula for a sustainable draw from the Permanent Fund’s Earnings Reserve Account (ERA) to provide consistent funding for government services, such as public safety, education and transportation. The PFPA also better ensures a dividend of at least $1,000 for 2017, and maintains dividends for about the same amount for years to come.
Governor Walker also proposed a motor fuels tax which, if passed by the legislature, would be the first significant statewide increase Alaskans have paid since 1970. The revenue generated would cover transportation costs, like road maintenance and snow removal.
Even with the improved oil price forecast, the Walker-Mallott administration’s FY2018 budget proposal leaves an $890 million gap between spending and revenue. Governor Walker said he looks forward to working with members of the legislature to determine the most responsible means to sustainably balance the budget and close the gap this year. The revenue measures the Governor introduced earlier this year can be re-introduced following discussions with the legislature.
Sen. Mike Dunleavy (R-Mat-Su & Copper River valleys) said in a prepared statement, "Upon review, it would appear Governor Walker is relying heavily upon the use of the Permanent Fund to balance his budget instead of looking for reductions to government spending. His proposal is to take roughly $5 billion from the earnings reserve account of the Permanent Fund in one budget – which is really $5.9 billion if you count the Governor's appropriation for this year's $1,000 PFD and inflation proofing. This single piece of legislation removes almost $6 billion from the Permanent Fund – 10 percent of the fund's value – in one fell swoop."
Dunleavy said, "The people of Alaska should be greatly concerned by a transfer of funds of this magnitude, especially in conjunction with such minimal proposed reductions in state spending. While a draw from the ERA may be legal, one of this magnitude is unprecedented and should be concerning to all. This may be the biggest fund transfer in state history. The administration is reaching back and appropriating funds from the earnings reserve account to the general fund to pay for government, which is unnecessary because the FY 17 budget was already fully funded."
"Whether you believe receiving a Permanent Fund Dividend is a right, or not, draws of this size could impact the integrity of the fund and its ability to continue to pay dividends, as it has consistently for the past 35 years. The founders of the Permanent Fund, including former Governor Jay Hammond, wanted this fund to be permanent, and they knew those in power could not restrain themselves from spending the fund away irresponsibly. Therefore, I will be working with other legislators to protect the fund and the PFD against a government that appears committed to spending it," said Dunleavy.
“There is no question that Governor Walker is willing to address the fiscal challenge head-on during the upcoming session. The members of the new House Majority Coalition share his resolve,” said Rep. Bryce Edgmon (D-Dillingham), who has been chosen as the Speaker-Elect for the Alaska House of Representatives. “We will give the Governor’s proposals a fair hearing and will look at them very closely.”
Low oil prices and past failures to implement a comprehensive fiscal plan have left lawmakers facing a projected $3 billion deficit in the next fiscal year. With anticipated revenues of only $1.6 billion and just one year’s worth of savings remaining, lawmakers must consider new sources of revenues as part of the solution.
“All of us in Alaska are facing some tough choices in the effort to protect our economy, which by all measures is now officially in a recession,” said Rep. Paul Seaton (R-Homer), one of the incoming Co-chairs of the House Finance Committee. “I joined the new House Majority Coalition because our 22 members have fully committed themselves to passing a comprehensive and sustainable fiscal plan for the state of Alaska. That plan may align with what the Governor has proposed or it may be significantly different, however we will address this fiscal crisis this session.”
In a prepared statement, Governor Walker confirmed that he will forward to lawmakers a similar version of the Permanent Fund Protection Act that passed the Alaska Senate in June but failed to pass the Alaska House of Representatives. Governor Walker is also proposing legislation to increase the motor fuel tax to near the national average of 25 cents a gallon. Additionally, Governor Walker is proposing legislation to freeze structured pay increases for non-unionized state employees. The Governor’s revenue package does not include a statewide income or sales tax, but it’s anticipated those revenue measures will be considered during the next legislative session.
According to the Alaska House Majority news release, the Governor Walker noted that his budget proposal includes an $890 million gap between anticipated spending and projected revenue. The Governor stressed that he will work with the Alaska Legislature on ways to close the budget gap this year.
“The Governor has started the ball rolling, but it’s now time for the members of the House and Senate to get to work to come up with responsible measures to fill the budget gap,” said Rep. Gabrielle LeDoux (R-Anchorage), who will serve as the Chair of the House Rules Committee in the 30th Alaska Legislature. “It’s my hope that fixing our flawed system of subsidizing the oil and gas industry with large tax credits will be part of the fiscal solution. I support efforts to increase oil and gas production in Alaska. But we can’t let those subsidies overwhelm our budget and jeopardize essential state services like public education and public safety.”
In addition to the proposed FY 2018 budget, the administration of Governor Walker also released the Fall 2016 Revenue Sources Book, which estimates that unrestricted General Fund revenues will total $1.4 billion in FY 2017 AND $1.6 billion in FY 2018. The revenue forecast is based on a projected oil price of $46.81 per barrel in FY 2017 and $54.00 a barrel in FY 2018.
Glaringly absent from the budget proposal was any mention of reforming the state’s flawed system of oil tax credits under which Alaska receives less from the industry than we owe said Senator Bill Wielechowski (D-Anchorage). According to the recently released Alaska Revenue Sources Book, next year Alaska will receive $89.7 million in oil production taxes but will owe the industry $1.374 billion in oil tax credits.
“We are slated to pay out over $1.3 billion in oil tax credits while receiving only $89 million in production taxes. In fact we are projected to pay out more money in oil tax credits than we get in oil production taxes not just this year, but every year through at least the year 2026, and that’s as far out as they project,” said Senator Wielechowski who sits on the Resources Committee. “This is simply not sustainable, and any responsible fiscal plan for the state must acknowledge that this needs to be fixed.”
“The obvious lack of any mention of subsidies to the oil industry by the administration is the elephant in the room,” said caucus leader Sen. Berta Gardner (D-Anchorage). “This is a huge amount of money, without any accountability or information to allow us to make informed decisions. We appreciate the Governor’s sentiments, and agree that the time to act is now, but it’s impossible to get behind any fiscal plan when it doesn’t even include step one.”
The Alaska Constitution mandates developing resources for the maximum benefit of the people. For more than 30 years, Alaska got about 30% of the gross value of our oil wealth. With our current tax structure Alaska is receiving only 8% of our oil wealth.
“If we were receiving our historical average from our oil resources, there is no question that it fills a huge chunk of the hole in our budget,” said Senator Wielechowski. “I think Alaskans would rather readjust our system to what worked in the past than give up vital services, and have money taken out of their pockets to fund government.”
Governor Walker’s budget and revenue proposals will be considered when the 30th Alaska Legislature convenes on January 17th in Juneau.
On the Web:
State Closures and Cuts to Date (December 15, 2016)
Source of News:
Office of Gov. Bill Walker
Senate Democratic Caucus
Office of Sen. Mike Dunleavy
Alaska House Majority Coalition
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