PFD is TBD entering final week of session
As is often the case, activity in Juneau is ramping up as the legislative session is winding down.
The budget is at the center of almost everything legislators have done so far, but lawmakers in the House are also close to sending an omnibus crime bill to the Senate.
That legislation, House Bill 49, would roll back many of the provisions of Senate Bill 91, the 2016 criminal justice reform package aimed at reducing state incarceration rates that has drawn ire from the public. SB 91 has largely been blamed for the statewide spike in property crimes in recent years, although Alaska’s concurring opioid epidemic and drawn-out recession have also been cited as reasons for the rise in crime.
However, it’s unclear at this point what the Senate will be able to do with HB 49 with only about a week left in the regular session and the budget still unresolved. Gov. Michael J. Dunleavy has said he would be willing to call a special session if crime legislation is not addressed this year, but those calls will likely be left for after May 15, the last day of the regular session.
House and Senate Finance leaders convened briefly May 7 for the initial operating budget conference committee meeting. The joint operating budget conference committee is being chaired by House Finance co-chair Neal Foster, D-Nome.
At the highest level and on items other than the Permanent Fund dividend, the Senate’s unrestricted General Fund budget is $2 million less than what passed the House in April.
Both budgets contain about $720 million more for agency and statewide spending, such as debt service, than Dunleavy proposed in February. While Dunleavy has emphasized closing the roughly $1.6 billion budget deficit without new revenues or reductions to the PFD, nearly half of his plan to close the budget gap came from redirecting existing state funds or diverting local petroleum property and fishing landing tax revenues to the state.
The administration’s bills to shift the local taxes to state coffers have mostly been ignored by the Legislature.
On the big budget items, legislators, to varying degrees, have split the difference between Dunleavy’s budget and current state spending levels.
The Senate approved just more than $1 billion for the Department of Health and Social Services, while the House included an additional $54 million on public health and assistance programs.
The difference is largely due to differing beliefs regarding how much of the administration’s roughly $100 million in regulatory and efficiency cuts to Medicaid can be achieved this year. Many of the administration’s cuts in DHSS to areas other than Medicaid were scaled back by legislators.
The Senate DHSS budget is $142 million less than current, fiscal year 2019 spending, while Dunleavy had proposed $309 million in Health Department cuts.
State hospital leaders said the administration’s original plan to cut upwards of $270 million from the state’s portion of the Medicaid program — which would mean forgoing approximately $470 million in federal matching funds — would severely strain the finances of smaller hospitals in the state, discourage providers from accepting Medicaid and would greatly harm the state’s already fragile economy.
The Senate also roughly halved the governor’s $95 million cut to the Alaska Marine Highway System with a $44 million reduction that would keep the ferries running at reduced levels year-round. The House cut ferry funding by just $10 million.
The governor’s plan to shut down the ferry system Oct. 1 while in the meantime studying alternative management structures was admonished by many coastal residents and legislators, particularly given statements during his campaign that he did not plan to drastically curtail ferry service.
Dunleavy’s $134 million cut to the University of Alaska system was also largely disregarded. The House agreed to a $10 million university cut; in the Senate it’s $5 million.
The Senate also chose to add $11 million above current levels to the Department of Corrections current $291 million budget, while the House landed on a $14 million cut and the governor proposed a $19 million reduction to Corrections spending.
Both bodies also added about $10 million to the Public Safety budget, while Dunleavy planned to cut it by $3 million.
They also left Department of Education funding largely unchanged from current levels after forward funding it last year.
The Senate Finance Committee is also in the midst of finalizing its version of the capital budget. The Senate’s capital spending plan calls for $172 million in unrestricted General Fund spending largely to match just more than $1 billion in federal funds, mostly for highway and airport projects. The governor’s capital budget calls for $95 million in discretionary General Fund appropriations.
The latest version of the capital budget also restores Alaska Marine Highway vessel maintenance and Tustumena ferry replacement funding. It also funds the Alaska Housing Finance Corp.’s popular home weatherization program and its Cold Climate Housing Research Center.
What will be the final totals for both budgets is unclear at this point and Dunleavy’s expressed willingness to veto parts or all of the state’s budgets adds another major wrinkle to the situation.
However, the strong and unusual bipartisan support for the budget in the Senate — it passed 19-1 — is an indicator that there could be enough support for the Legislature’s final budget to override any vetoes. Overriding a budget veto requires support from 45 of 60 legislators.
Permanent Fund budgeting
There are glaring holes in different places related to the PFD in both the House and Senate budgets.
Despite being crafted by Republican Finance co-chairs Sens. Bert Stedman of Sitka and Natasha von Imhof of Anchorage — both of whom have stressed the need to protect the Permanent Fund and recalculate the dividend formula — the Senate’s budget contains full funding for a roughly $3,000 PFD.
However, the large dividend results in a $1.2 billion deficit in the Senate’s plan. A fully funded 2019 PFD will cost the state slightly more than $2 billion, according to the Legislative Finance Division.
The Senate’s budget would balance with funding to support roughly $1,200 PFDs, according to Finance figures.
On the House side, the issue is the complete lack of a PFD in the budget. House leaders have said the PFD would be addressed in separate legislation; but the huge discrepancy leaves ample room for a compromised PFD amount to be worked out in the conference committee, which Stedman and von Imhof have indicated was at least partly behind their thinking to initially appropriate for full dividends.
As a counterbalance, the Senate budget would also move $12 billion from the spendable, $18 billion Earnings Reserve Account of the overall $65 billion Permanent Fund to the constitutionally protected corpus of the fund.
Such a transfer would discourage legislators from violating the 5.25 percent of market value draw limit on the Permanent Fund established last year, but could also put the Earnings Reserve at risk of being depleted if financial markets have several successive down years.
This year’s 5.25 percent draw calculates to approximately $3 billion to be split for PFDs and government services. Completely draining the Earnings Reserve through ad hoc draws, poor returns, or a combination would leave no money for dividends or government support in future years.
The House Finance Committee on May 6 sent a proposal to the floor from Sitka Democrat Rep. Jonathan Kreiss-Tomkins to transfer $8 billion from the Earnings Reserve to the Permanent Fund corpus. The smaller transfer is seen as a way to still protect billions from being spent while leaving additional headroom in the event of market downturns.
Elwood Brehmer can be reached at [email protected].