Tempers flaring as House, Senate spar over budget fixes

JUNEAU — Locomotives at each end of the Capitol’s second floor were being fired up this week — figuratively, at least — one at the state House end of the second floor and one at the state Senate end.

A train wreck in the middle seems unavoidable.

House leaders are insisting on a state income tax, a hike in oil taxes and little to any cuts to the state budget. Senate leaders want about $200 million in spending cuts, a Permanent Fund income restructuring and no new taxes on personal income or increased taxes on oil production.

The differences are clear, and neither side shows signs of budging. Tempers are also rising.

The Senate version of the operating budget was to be on the Senate floor April 6, making major cuts to education that are roiling the state’s education community, as well as state House leaders.

A bill that restructures use of Permanent Fund earnings and caps the annual PFD at $1,000 for three years, along with a spending cap, has passed the Senate.

“We’ve done our job, but the House has sent us nothing so far that deals with the fiscal gap. Until they act, all they do is talk about it,” Sen. Anna MacKinnon, R-Eagle River, co-chair of the Senate Finance Committee, said in a briefing by the Senate Majority April 3.

There are signs the House Majority is having difficulty getting enough votes to pass its version of a fiscal plan that includes the income tax, in House Bill 115.

The proposal to increase taxes on oil and gas companies, in HB 111, may also face challenges in the House Majority, which is a 22-member coalition of Democrats, three Republicans and two independents that can only lose one vote before a bill fails.

In the House Majority briefing April 4, House Speaker Bryce Edgmon, D-Dillingham, said the Senate’s education cuts could result in one-sixth of the teachers being lost in his local school district in Dillingham. The Senate plan could have a cumulative effect, too.

“The year after there could be an equal impact, so we’d lose one-third of our teachers, and the year after it could be up to half. This will really erode small school districts,” Edgmon said.

House Finance Co-Chair Rep. Paul Seaton, R-Homer, said the Senate’s budget proposal for a 5 percent reduction to the Base Student Allocation (a formula that guides state funding for local schools) this year will cost school districts about $70 million.

House Majority Leader Chris Tuck, D-Anchorage, criticized the Senate Finance Committee for not allowing the public to weigh in on the BSA proposal during public hearings on the operating budget because the reduction had not yet been made.

Seaton took issue with another plan by the Senate, to phase out the state’s University of Alaska performance scholarships, a key accomplishment of former Gov. Sean Parnell.

“This is something for education we’ve done right,” Seaton said. “It has resulted in 5,000 students enrolling at the University of Alaska over the last four years, and over the same period high school graduation rates have gone up 16 percent. Something must be driving that,” he said.

“The Senate is holding education hostage just to get a Permanent Fund percent-of-market-value (POMV) bill and a cut to the PFD,” Tuck said, and meanwhile avoiding discussion of a new broad-based tax.

Senate leaders argue their plan for a Permanent Fund POMV, which is in Senate Bill 26 that has passed and is now in the House, will result in a balanced budget by 2023 with no new broad-based tax or tax hike on oil.

This assumes the $4.1 billion statutory spending cap of general fund revenues also in SB 26 is honored, and spending remains at that level through 2023.

Seaton disputes the Senate’s numbers.

“That plan (in SB 26) leaves us with an $800 million deficit this year and a $500 million deficit by 2023 that will continue every year, eventually depleting our cash reserves,” he said.

Seaton did not explain why his arithmetic varies with the Senate’s but the assumptions are correct if the Senate’s proposed cuts are not enacted.

Meanwhile, the only alternative to an income tax, a state sales tax, won’t work, Seaton said.

“That’s why no one has brought it forth. It would have too many adverse effects on municipalities that now have sales taxes, and on businesses,” he said. “To get the same amount of revenue (as an income tax) a sales tax would have to be 4 percent and applied broadly and including purchases of equipment and supplies. This is really regressive because businesses would have to pay this tax up front, before they can put equipment to work.”

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

04/05/2017 - 1:38pm