James Brooks

Rep. Wilson files ethics complaint against Gov. Walker over press release

Rep. Tammie Wilson, R-North Pole, has filed an ethics complaint against Gov. Bill Walker for a statement included in a press release issued from Walker’s office on Wednesday morning. The press release, which accompanied a six-page report outlining the consequences if the Legislature fails to balance the state budget, concluded with this paragraph: “I will ask every legislator and every candidate for the Legislature to choose which of these three plans they support. Failure to choose a plan will constitute support for the No Action Plan (NAP). After Alaskans become familiar with the type of Alaska each of these three plans represents, voters will be much better informed about who should represent them in Juneau.” The Alaska Republican Party, in a statement responding to the governor’s press release, said in part that “‘I will ask every legislator and every candidate…’ is code language for using the governor’s bully pulpit as a campaign stump.” In a press conference Thursday morning, Walker said he has not ruled out the possibility of offering his support to legislators or candidates for the Legislature in this fall’s election. Given his recent veto of half the Permanent Fund Dividend, “right now, I don’t know if I could help anybody,” he said. “I’m not sure if that would be any help.” Wilson said she agreed with the Republican Party’s assertion and “to me, what he said today actually sealed it. He meant exactly what he wrote and then said.” While it’s not illegal for a sitting governor to support a candidate for office, the governor cannot use state resources to do so. The Alaska Executive Ethics Act states that a public official cannot “use or authorize (a) ... government asset or resource for partisan political purposes.” In this case, Wilson’s complaint alleges that Walker’s official press release was used to do so. Walker responded to the Republican Party’s accusation with a prepared statement Wednesday. “I want to clarify that I am not trying to influence an election. I am trying to inform the public about what the legislature’s own analyst has called the ‘gravest fiscal crisis in state history,’” Walker wrote. “I want Alaskans to know the consequences of action and inaction. I regret any misunderstanding this may have created.” Similar complaints have frequently been levied against sitting governors. In 2014, Gov. Sean Parnell was the target of a complaint by the Alaska Democratic Party. Gov. Sarah Palin was a frequent target of ethics complaints (most were dismissed) before she resigned. In a 2009 legal opinion pertaining to one of the complaints against Palin, the Alaska Department of Law outlined the process that is followed when a complaint is filed against a sitting governor. Normally, the attorney general investigates ethics complaints. When the complaint is against the governor, the state personnel board appoints an independent counsel to act instead. The counsel investigates the issue and may dismiss the matter. If the complaint is not dismissed, the counsel issues a public accusation. This is followed by an evidentiary hearing in front of the personnel board. In the hearing, the board may penalize the defendant if the complaint is justified. Jonathan Woodman, an attorney with the Alaska Department of Law who is familiar with the process, said there is no set timeline for the process. Wilson isn’t the only person filing a complaint, either. On Thursday morning, Andrée McLeod of Anchorage announced she was filing a complaint along the lines of Wilson’s. In a letter attached to her complaint, she says the governor’s press secretary and assistant “can’t actively run a political campaign from his state office for or against legislators and candidates.” McLeod’s complaint also states that Walker’s “plan to identify, target and brand legislators and candidates during this election season also runs afoul of campaign finance laws and regulations within the purview of the Alaska Public Offices Commission.” McLeod was a frequent watchdog when it came to the Palin administration. She repeatedly filed requests for information and ethics complaints in an attempt to make sure public officials follow public records laws when they communicate, she said in 2009.  

Senate to decline veto override session

JUNEAU — The Alaska Legislature is poised to adjourn its fifth special session without taking any action to address the 49th state’s multibillion-dollar deficit. On Thursday, Alaska Senate President Kevin Meyer said by phone that the Senate will turn down an invitation from the House to consider overriding any of the budgetary vetoes signed by Gov. Bill Walker on June 29. “It does appear there isn’t the support to accept the invitation to meet with the House for potential veto overrides,” he said. The Senate’s decision leaves the deadlocked House with few options but to adjourn. Speaker of the House Mike Chenault, R-Nikiski, said the House Majority will meet in closed caucus to decide its next action. The House is scheduled to meet at 1 p.m. Friday. The Senate will meet at 11 a.m. Friday. Both floor sessions are in Juneau’s Terry Miller Building. There is little appetite in the Senate to override any of Walker’s $1.3 billion in vetoes, an act that would increase the state’s deficit. On the opposite side, there is little appetite in the House to consider any revenue increases similar to those passed by the Senate. The House has failed to hold a hearing on any matter since the start of the 29th Legislature’s fifth special session on Monday. Due to oil prices’ plunge, the state is expected to earn about $1.5 billion per year. To make ends meet, it needs $4.5 billion per year. The state is expected to exhaust its available savings by 2020 unless matters change. Earlier this year, the Senate approved Senate Bill 128, a measure that would allow the state to spend almost $2 billion per year (at present values) on state services from the earnings of the Alaska Permanent Fund. The House Finance Committee failed to advance SB 128 to a floor vote in the previous special session, an act that killed the best chance for significant new state revenue. Few minds have changed in the House since then. The Alaska Constitution requires 45 votes from the 60-member Legislature to override a gubernatorial veto of a financial item. “Forty-five is such a big number,” Meyer said. “Forty-five is three-quarters of the Legislature, and getting three-quarters of the Legislature to agree on anything is pretty hard.” While most members of the House are in favor of overriding at least one veto, they don’t agree on which ones. Democrats have tended to favor the restoration of education and university spending. Republicans have tended to favor the restoration of the Permanent Fund Dividend, which was halved from $2,000 to $1,000 by Walker. Furthermore, not all the members of the House are expected to be present on Friday, and an absent member is just as good as a “no” vote when it comes to the final tally. “We can all do the math,” Meyer said, and even if all 38 of the House members expected to attend voted to override a veto, “that would still require at least seven from the Senate to support them. That’s pretty tough to do.” “If you don’t think you’ve got the votes to pass it, then why pay the expense to do it when you know that you’re going to fail?” Meyer asked. Some in the House have responded that it’s worth it to simply try, he added. “I get that, but I also get that they’re also running for election,” he said. In this year’s budgeting process, the Senate suggested significant cuts to the state budget. To gain the votes of the House majority, the Senate had to restore some funding. To get the votes of the House minority, senators had to reverse themselves still more. As Meyer explained, Walker’s vetoes gave senators what they wanted — bigger cuts to government. In a press conference Thursday morning, Walker said he’s done everything he can do to address the state’s fiscal crisis. “Sixty Alaskans hold Alaska’s future in their hands,” he said. “It’s really in their hands at this point.” James Brooks can be reached at [email protected]

Little optimism in House to succeed in veto overrides

JUNEAU — The Alaska House of Representatives has asked the state Senate to join it for a joint session at noon Friday for the purpose of overriding some or all of $1.2 billion in budgetary vetoes signed by Gov. Bill Walker. That includes Walker’s cut to the Permanent Fund Dividend. Before the state fiscal year began July 1, Walker demanded that the Legislature implement a comprehensive fiscal plan to erase Alaska’s multibillion-dollar budget deficit. When lawmakers failed to do so in a regular session, an extension of that regular session, and in a special session, Walker halved the dividend ($666 million), eliminated $430 million in oil and gas drilling subsidies and cut $190 million from agencies and education from K-12 to the university system. The Alaska Constitution requires the Legislature to override a veto within five days of the start of a special session following the veto. Friday will be the fifth day and the last opportunity to override any of Walker’s decisions. Daniel McDonald, a spokesman for the Alaska Senate Majority, said by email that senators “received the letter and the issue is being discussed among the caucus.” If the House and Senate agree to meet on Friday, they will go line by line through each of the 41 vetoes. There must be a “yes” vote from 45 of the Legislature’s 60 members to override the veto. It will not be easy. “Most legislators don’t think there’s any chance,” said Rep. Mark Neuman, R-Big Lake. While there is broad agreement on voting to override some of Walker’s vetoes — House majority leader Charisse Millett, R-Anchorage, and House minority leader Chris Tuck, D-Anchorage, are working together — there is broad disagreement about what exactly should be restored. “Every one of us has a priority of the items that were vetoed … but I also think that there’s such as spread in what was vetoed that it will be very difficult for any one individual item, perhaps, to get the support to be overridden,” said Rep. Sam Kito III, D-Juneau. Kito said he favors an override on the governor’s cuts to education, school bond debt reimbursement and to the university system. “We still have to educate our students. We still have to make sure we’re supporting our schools,” he said. Of the opposite viewpoint is Rep. Lynn Gattis, R-Wasilla. “I’m pushing for a Permanent Fund Dividend veto override. I would have to say that it’s not just my thought, but the folks in the Mat-Su are mad,” she said. “They want me to push for that. I think for them, it’s about how dare this governor think that he’s going to do this without making the significant cuts and the cuts to all government?” Kito and Gattis are emblematic of the Legislature’s divide and the divide in Alaska as a whole. At a Wednesday afternoon Senate State Affairs Committee meeting in Wasilla, Sen. Bill Stoltze, R-Chugiak, offered plenty of barbs for administration officials as the chanting of demonstrators was clearly audible through the walls of the Wasilla Legislative Information Office. Early Wednesday, Walker’s staff released a six-page report explaining that there will be dire consequences if the Legislature fails to raise new revenue through taxes, spending from the Alaska Permanent Fund, or some combination of the two. By 2020, the state would be forced to operate with as little as one-third of the budget it has today. That would result in prisoners being released from jail early, mass layoffs and other unsavory actions, the report states. But big cuts have big support in some areas of the state. Gattis said she doesn’t see all of the bullet points on Walker’s report as bad things. “I choose to say that it allows us to take action, the very action we need,” she said. With other industries cutting back, it makes sense for government to do the same. “When you don’t have money — and it’s kind of a bumper sticker — but if you’re broke, you have to act like it.” “It’s clear now: We have a serious fiscal crisis,” Walker said in a prepared statement. “How we deal with this crisis will define us all — with no less than Alaska’s future hanging in the balance. I therefore expect, and all Alaskans should demand, compromise and affirmative action by this Legislature on a comprehensive solution to our massive budget deficit during this special legislative session.” Walker went on to say that after Alaskans become familiar with the options in front of them, “voters will be much better informed about who should represent them in Juneau.” The Alaska Republican Party issued a statement saying it considers Walker’s statement a threat to campaign against lawmakers who vote against his fiscal ideas. If that’s the case, it could be a violation of the state’s Executive Ethics Act, which prohibits “use or authorize the use of state funds, facilities, equipment, services, or another government asset or resource for partisan political purposes.” “Gov. Walker issued a press release this morning in which he not only threatened sitting legislators, but strongly inferred he would campaign against anyone who doesn’t answer his specific questions about addressing the budget gap,” said Rick Whitbeck, vice chairman of the Alaska Republican Party, in a prepared statement. “He has stepped over the line when it comes to misusing the office. Alaskans have to ask themselves if he’s violated the Executive Branch Ethics Act.” “It might’ve hurt him a little bit with some of his relationships with legislators,” said Tuck, the leader of the House Democrats. Later Wednesday, Walker issued a statement regarding the ethics charge: "While it has been determined that the statement I made about the upcoming election was not a violation of the ethics act, I want to clarify that I am not trying to influence an election. I am trying to inform the public about what the legislature's own analyst has called the 'gravest fiscal crisis in state history.' I want Alaskans to know the consequences of action and inaction. I regret any misunderstanding this may have created.” Contact James Brooks at [email protected]

Another special session called after House fails to pass fiscal plan

JUNEAU — It’s over, but not done. At 11:46 a.m. Sunday, the Alaska Senate adjourned the fourth special session of the 29th Alaska Legislature. Forty minutes later, Gov. Bill Walker issued a proclamation stating that the fifth special session will begin on July 11. On its agenda will be three items: Using the earnings of the Alaska Permanent Fund to pay for government operations, reforms to the state’s system of oil and gas tax credits, and a suite of tax increases. “I am absolutely convinced that if we don’t fix this now, then our challenges next year will be even more magnified,” Walker said in a press conference Sunday afternoon. All three items were on the agenda for the fourth special session, too. “I feel horrible about it. We didn’t get anything done,” said Sen. Dennis Egan, D-Juneau, after the Senate adjourned Sunday morning. “Alaska’s still in a deep fiscal strait and it’s got to be fixed.” Despite 149 days of work so far, the Legislature has failed to pass measures that would balance Alaska’s state budget without deep draws from the state’s savings accounts. Walker proposed a 13-point plan to resolve the deficit, but lawmakers failed to pass any measures raising taxes or providing new revenue. While lawmakers did cut hundreds of millions of dollars from the state budget — which is now down approximately 30 percent from two years ago — Alaska still has a $3.2 billion-plus deficit in the fiscal year that starts July 1. “It would’ve been nice to be able to complete (a fiscal plan), but to be fair, these are tough decisions,” said Senate Majority Leader John Coghill, R-North Pole. “There’s no easy decisions left, and so the House and Senate just could not agree on a methodology.” Walker implied Sunday that the Legislature’s inaction means he will use his veto pen liberally before the budget takes effect. “The size of government may be quite a bit different once this budget is complete,” he said. He has 11 days to make vetoes before signing the budget. Walker did not rule out cuts to the Permanent Fund Dividend, even when pressed on the issue. “I’d say at this point, all options are on the table,” he said. The biggest of the many stumbling blocks between the governor and Legislature was Senate Bill 128, which called for a 5.25 percent annual draw from the Alaska Permanent Fund. The draw, which would be from a five-year average of the Fund’s value, would pay for the Permanent Fund Dividend and provide money for state services. “This doesn’t fix all the problem, but this is the cornerstone of it,” Walker said of the bill. As a side effect of the bill, however, the Dividend would be cut as low as $1,000 in the version passed by the Senate. The House Finance Committee amended language to increase this year’s PFD to $1,500, but committee members still failed to move it to a floor vote. Without SB 128, or a line item veto, the dividend is expected to be about $2,000 this fall. The Senate voted 14-5 in favor of the bill earlier this month, but the House Finance Committee voted 5-6 on Friday against advancing the bill to a vote of the full House. Walker has previously said that preserving the full dividend is unacceptable. Without changes, he has said, the state will not have sufficient savings to take major action next year. “Do we have to run out of savings before we fix the problem?” Walker asked rhetorically. “The time to act is now, and we support the governor on that,” said Senate President Kevin Meyer, R-Anchorage, about the House’s failure to pass the bill. Special session agenda Neither of the two failed bills made it onto Walker’s agenda for the fifth special session. That agenda is headlined by SB 128. “I spoke with the governor this morning, and obviously the main bill that he wants is SB 128,” Meyer said. The agenda also includes tax increases that gained no traction in the House and additional reforms to the state’s system of oil and gas subsidies. The tax package also includes the possibility of a sales tax, which many legislators have said their constituents could support as a broad-based tax over the administration’s income tax proposal. Proponents of a state sales tax tout it as a way to extract revenue from the nearly 2 million visitors to Alaska each year. Walker and members of his administration have reiterated since introducing the income tax idea in December that implementing the mechanics of a sales tax in rural areas of the state would be a significant challenge. Additionally, a standard percent of purchase sales tax would almost unavoidably hit remote communities harder than urban areas even with traditional exemptions for essential items, given the higher cost of all goods and services. Walker said he has not decided whether to veto House Bill 247, passed by the Legislature during its fourth special session. That bill contains cuts to the credit system but preserves a mechanism that allows North Slope explorers and producers to receive refunds or deductible production tax credits for operating losses incurred during periods of low oil prices or high development costs. Some lawmakers, particularly in the House, said the bill does not cut the subsidy enough. Walker could propose further cuts or veto the bill entirely as a means to force action. He told reporters they shouldn’t “read too much into” the inclusion of oil and gas tax credits again on the special session agenda. “A lot of good work was done on (HB 247). I appreciate that and I will evaluate that and take that into consideration,” he said. Walker said he expects lawmakers to “do what they need to do” during the interim, including talking to constituents. Asked whether the interregnum between special sessions could result in reduced support for SB 128, Meyer said he doesn’t think that’s likely in the Senate. “I think the Senate’s pretty comfortable in the vote that they made, and we would make that same vote again in July,” he said. “I don’t think there’s any risk on our part of losing support in the Senate.” He said he’s received more positive comments than negative ones since the Senate voted on SB 128, and he believes that some House members might change their opposition if they listen to constituents before the start of the fifth special session on July 11. No benefits for families of slain police The Senate’s adjournment kills two bills passed by the House in the final days before its adjournment. HB 4002, which passed the House in a 34-0 vote Saturday, calls for 10 years of medical benefits for the spouses and children of police and firefighters who are killed in the line of duty. The children must not be older than 19, or 23 if they are still attending college. The benefits cover any peace officer or firefighter who is a member of the Public Employees Retirement System. This includes many municipal officers, corrections officers and some volunteer firefighters statewide. House Bill 246, which passed the House 30-6 on Friday, sets up an oil and gas infrastructure loan program under the state-owned Alaska Industrial Development and Export Authority. Under the bill, drilling companies would have been allowed to apply for low-interest loans as a subsidy instead of using the state’s controversial tax-credit incentive program. Meyer suggested the two bills could be revived in the 30th Alaska Legislature, which will convene in January 2017. Journal reporter Elwood Brehmer contributed to this story.

House committee kills bill to use Permanent Fund earnings

JUNEAU — The Alaska House Finance Committee has failed to advance the heart of Gov. Bill Walker’s 13-point plan to erase the state’s deficit, leaving the state on track to run out of savings within six years. About 12:40 p.m. Friday, the committee voted 5-6 against advancing Senate Bill 128 to a vote of the full House. SB 128, already passed by the Senate, calls for a regular draw from the Alaska Permanent Fund to pay for state services and the Permanent Fund Dividend. Despite months of advocacy by the governor and his staff in town-hall meetings across the state, many Alaskans remain opposed to the measure, which includes cuts to the Dividend. On Friday morning, members of the House committee said they were listening to their constituents’ opposition and voting against the bill, even though it would go further than any other measure to close the state’s deficit and stretch Alaska’s savings accounts for years. “We have not cut the budget enough, and our constituents don’t support it,” said Rep. Dan Saddler, R-Eagle River, before voting against the advance.  

Nearing end, Legislature rebuffs most of Walker’s deficit plan

JUNEAU — After 137 days in regular and special session, the Alaska Legislature may be nearing an end to its work. “I know we’re not done yet, but I think we’re close,” Senate President Kevin Meyer, R-Anchorage, declared on June 6. Both houses of the Legislature have stopped work to allow Juneau’s biennial Native event, Celebration, to take place. No significant Legislative action is scheduled before June 13. While the Legislature may be nearing the end of its long stay in Juneau, its long-term goal remains unfulfilled: Alaska still has a multibillion-dollar budget deficit. In December, Gov. Bill Walker proposed a 13-part plan to resolve that deficit by 2019. Here’s where each part of that plan stands: • Permanent Fund spending: passed Senate, awaiting House. The biggest part of Walker’s plan to erase the deficit is the notion of using earnings from Permanent Fund investments to partially fund state operations. Senate Bill 128, drafted by Sen. Lesil McGuire, R-Anchorage, calls for a 5.25 percent annual draw from the fund’s Earnings Reserve. At current amounts, that would generate about $1.8 billion. As a consequence, the Permanent Fund Dividend would be $1,000 for the next three years and lower after that. Without changes, the dividend was expected to be about $2,000 this year. • Capital budget: passed Senate and House. The state’s capital construction budget passed the Legislature in the special session on the last day of May. It contains less than $100 million in state money; most of that will be used as matching funds for $1.2 billion in federal transportation money. • Operating budget: passed Senate and House. The Legislature passed an operating budget worth about $4.3 billion. That’s a cut of almost $800 million from the current fiscal year, but the Legislature also approved some expenses that don’t fall within the new budget: There’s $430 million in subsidy payments to oil and gas companies, for example, and Gov. Bill Walker has argued that the Legislature’s cuts are somewhat of a mirage. • Mental health budget: passed Senate and House. The budget for the state’s comprehensive mental health system is a separate item every year, and it tends to be uncontroversial. This year’s was no different. • Oil and gas tax credit reform: passed Senate and House. House Bill 247 promises savings of up to $10 million in the next fiscal year, but the savings add up in future years, reaching more than $200 million per year by 2025. Still, that’s much less than had been offered by a version of the bill that passed the House but was rejected by the Senate. • Oil and gas loan program: unpassed. House Bill 246, introduced by the governor, was intended to create a loan program replacing the state’s oil tax credit subsidy for drillers. The reform bill that passed the Legislature failed to eliminate the tax credit subsidy, so the need for HB 246 is uncertain. • Mining tax increase: unpassed. House Bill 4005 would increase by 2 percentage points the tax on mines with profits of more than $100,000 per year. The result would be about $7 million more per year for the state. The bill as yet lacks the votes to pass the House, lawmakers have said. • Fisheries tax increase: unpassed. House Bill 4006 would increase most fisheries taxes by 1 percentage point and increase the permit fees for many state fisheries, generating $20 million more per year for the state treasury. The bill has not been brought up for a House vote because it lacks the votes to pass. • Motor fuel tax increase: unpassed. House Bill 4003 would raise the taxes on fuel for boats, cars, jets and propeller-driven aircraft, generating about $40 million more per year for the state. The tax on a gallon of gasoline for your car would rise from 8 cents per gallon (the lowest rate in the nation) to 16 cents per gallon (the second-lowest rate). The increase would be halved if oil prices rise above $100 per barrel and eliminated if oil rises above $120 per barrel. The motor fuel tax increase has the most support of any proposed tax hike, but it has not yet been brought to a vote in the House or Senate. • Alcohol tax increase: unpassed. No separate legislation exists in the special session for the governor’s proposal to double the state’s alcohol taxes. Alaska already has some of the highest alcohol taxes in the nation, and doubling them would give the state the highest alcohol taxes across the board. The governor’s original proposal, House Bill 248, promised $40 million more in revenue per year to the state. Per existing law, half that increase would go toward alcohol abuse-prevention programs and treatment. • Tobacco tax increase: unpassed. No separate legislation is being considered in the special session to raise the state’s tobacco tax. During the regular session, Walker proposed House Bill 304, which would have raised $24 million for the state by increasing taxes on cigarettes, other tobacco products, and electronic cigarettes. Of that increase, $2 million would have gone to a fund that fights smoking. • Cruise ship head tax increase: unpassed. No separate legislation is being considered in the special session to raise more state revenue from the tourism industry. During the regular session, Walker proposed House Bill 252, which would have raised $16.6 million per year for the state by prohibiting cruise agencies from deducting local passenger head taxes from their state tax liability. The bill also would have closed a loophole in the existing head tax. • Income tax: unpassed. House Bill 4004 would establish a state income tax equivalent to 6 percent of a person’s federal income tax. If someone owed $100 to the IRS, they would also owe $6 to the state. Anyone who pays no federal income tax would pay no state income tax. The bill promises $200 million in new revenue to the state, but it remains the most unpopular part of the governor’s 13-part proposal and has not received significant attention. While lawmakers have not acted on all 13 points of Walker’s plan (nor are they expected to), they have taken significant action in areas not on Walker’s agenda. House Bill 137, brought forward by Rep. David Talerico, R-Healy, increases many Fish and Game hunting and fishing license and tag fees, generating an extra $9 million per year. A pair of comprehensive reform bills — one aimed at prison sentencing reform, the other at Medicaid reform — also promise several million dollars in savings immediately. Lawmakers have said that passing any one of those reform measures would have been the highlight of a regular Legislative year. In this year, however, they’ve been overshadowed by the state’s continuing budget trouble, and even with all the actions taken to date, Alaska will continue to rely on its savings to balance its budget.  

Special session starts May 23 after party-line split in House over extension

JUNEAU — Alaska’s budget talks have failed. Shortly before midnight May 18, the Alaska Legislature adjourned without fixing the state’s $4 billion annual deficit and without providing a budget that keeps the state operating after July 1. Without a budget, all nonessential government services will end July 1. Alaska’s government will shut down. To avert that disaster, Gov. Bill Walker has ordered lawmakers into a special session starting 11 a.m. Monday. Topping the special session’s agenda will be the state’s operating and capital construction budgets. Also on the agenda will be bills to reduce or entirely erase the deficit: tax increases and spending cuts. “It’s not a real bright day for Alaska right now,” Speaker of the House Mike Chenault, R-Nikiski, said at the close of a press conference early Thursday morning. “I think we were very close to be able to put together a budget. Unfortunately, we just ran out of time,” said Rep. Craig Johnson, R-Anchorage and the House Rules Committee chairman. The Alaska Constitution limits lawmakers to 121 days of regular session. Lawmakers can extend that limit for up to 10 days with a two-thirds vote of the House and a two-thirds vote of the Senate. The Senate voted 16-3 in favor of an extension, but the House vote was 26-12, one vote shy. The vote was exactly along the divisions in the House: Every member of the Republican-led majority voted to extend the session and continue budget negotiations; every member of the Democratic-led minority voted to end it and break off negotiations. Rep. Matt Claman, D-Anchorage, and Rep. Mike Hawker, R-Anchorage, were each absent from the vote. “We just weren’t able to come to an agreement, and the Senate (adjourned) underneath us,” said House Minority Leader Chris Tuck, D-Anchorage. Impasse in the House The cause of the budget logjam is a disagreement in the House between the majority and the minority over the state’s $8.2 billion Constitutional Budget Reserve. With Alaska running a $4 billion annual deficit due to low oil prices, spending some of the reserve will be necessary to balance the budget, even under the most optimistic plans to cut spending and increase tax revenue. Using the reserve requires a three-quarters vote of the House and a three-quarters vote of the Senate. That vote is relatively straightforward in the Senate, where the Republican-led majority has a 16-4 advantage. In the House, it’s far less straightforward. The majority there has only 26 members, the minority 13 members, and there is one representative who is a member of neither caucus. Getting a three-quarters majority requires the support of both Democrats and Republicans. Multiple lawmakers said negotiations between the two sides involved only the state budget and the three-quarters vote. Democrats sought to reverse cuts to various state programs ─ including education ─ and Republicans needed Democratic support to spend a portion of the reserve. Extension or special session The House minority had been pushing for a one-day extension of the session, but the Senate rejected that notion. With the clock nearing midnight and the constitutional end of the session, the Senate voted to adjourn, leaving no alternative for the House but to adjourn as well. Walker had previously vowed to call lawmakers into special session, and Rep. Sam Kito, D-Juneau, said the choice to enter a special session rather than extend the regular session is a strategic one for minority Democrats. The end of the regular session means every bill not on the governor’s special-session agenda will die. “They would still be there in an extended session,” Kito said. Among the bills that concerned Democrats was House Bill 379, which would have eliminated merit raises for state employees when oil prices are low. He called that bill “a distraction from trying to get a funded and sustainable budget” and said lawmakers “need to focus on trying to make sure the budget is funded and that we have the ability to pay for that budget.” House Majority Leader Charisse Millett, R-Anchorage, said the end of the regular session means “a lot of lost work” because every bill on the special session agenda must now be reintroduced, considered by committee, and advance to a floor vote in a deliberate process. “To not be able to extend for 10 days, which I think was a reasonable ask … is incredibly unfortunate,” she said. Kito disagreed. “I don’t know that they really slow down that much because we’ve done a lot of the work to this point,” he said. Shutdown’s effects loom The Alaska Constitution implies that lawmakers must pass a budget each year, but it does not specifically state when that budget must be approved. “I think as long as we have a budget passed by … June 30, we have met our constitutional obligations,” Johnson said. “I don’t know if there’s a time limit on it,” Chenault said. While lawmakers may not be required to approve a budget until the final day of June, Alaskans will begin seeing the effects much sooner. Last year, thousands of state employees began receiving layoff warnings as early as June 1. Union contracts require 30 days’ notice before a layoff, and Chenault said state employees should expect to receive those notices again this year. Even if the special session moves quickly when it begins on May 23, he said he expects the state will need several days of advance planning to prepare, then mail those “pink slip” layoff notices. If the Legislature doesn’t finish its work by the middle of next week ─ something that may not even be technically possible ─ the pink slips will be in the mail. If the Legislature can’t finish its work in the 30-day special session, many of those pink slips will become more than just warnings. Contact Empire reporter James Brooks at [email protected] or 523-2265. On the agenda Here’s a brief list of what’s on the special session agenda ordered by the governor. The initial versions of the bills have yet to be selected, and each will be renumbered for the special session. House Bill 256 - operating budget HB 257 - mental health operating budget Senate Bill 138 - capital construction budget HB 245 or SB 128 - diverting a portion of the Alaska Permanent Fund’s earnings reserve to pay for state services HB 247 - cuts state subsidies for oil and gas drilling and production Establishing an income tax Raising the gasoline/motor fuel tax Raising the alcohol tax Raising mining taxes Reducing state subsidies for mining Raising fisheries taxes Marijuana taxes Raising tobacco taxes HB 200 - modifying adoption rules HB 27 - foster care reform

Legislature quits without finishing work

Alaska’s budget talks have failed. Shortly before midnight Thursday morning, the Alaska Legislature adjourned without fixing the state’s $4 billion annual deficit and without providing a budget that keeps the state operating after July 1. Without a budget, all nonessential government services will end July 1. Alaska’s government will shut down. To avert that disaster, Gov. Bill Walker has ordered lawmakers into a special session starting 11 a.m. Monday. Topping the special session’s agenda will be the state’s operating and capital construction budgets. Also on the agenda will be bills to reduce or entirely erase the deficit: tax increases and spending cuts. “It’s not a real bright day for Alaska right now,” Speaker of the House Mike Chenault, R-Nikiski, said at the close of a press conference early Thursday morning. “I think we were very close to be able to put together a budget. Unfortunately, we just ran out of time,” said Rep. Craig Johnson, R-Anchorage and the House Rules Committee chairman. The Alaska Constitution limits lawmakers to 121 days of regular session. Lawmakers can extend that limit for up to 10 days with a two-thirds vote of the House and a two-thirds vote of the Senate. The Senate voted 16-3 in favor of an extension, but the House vote was 26-12, one vote shy. The vote was exactly along the divisions in the House: Every member of the Republican-led majority voted to extend the session and continue budget negotiations; every member of the Democratic-led minority voted to end it and break off negotiations. Rep. Matt Claman, D-Anchorage, and Rep. Mike Hawker, R-Anchorage, were each absent from the vote. “We just weren’t able to come to an agreement, and the Senate (adjourned) underneath us,” said House Minority Leader Chris Tuck, D-Anchorage.   Impasse in the House The cause of the budget logjam is a disagreement in the House between the majority and the minority over the state’s $8.2 billion Constitutional Budget Reserve. With Alaska running a $4 billion annual deficit due to low oil prices, spending some of the reserve will be necessary to balance the budget, even under the most optimistic plans to cut spending and increase tax revenue. Using the reserve requires a three-quarters vote of the House and a three-quarters vote of the Senate. That vote is relatively straightforward in the Senate, where the Republican-led majority has a 16-4 advantage. In the House, it’s far less straightforward. The majority there has only 26 members, the minority 13 members, and there is one Representative who is a member of neither caucus. Getting a three-quarters majority requires the support of both Democrats and Republicans. Multiple lawmakers said negotiations between the two sides involved only the state budget and the three-quarters vote. Democrats sought to reverse cuts to various state programs ─ including education ─ and Republicans needed Democratic support to spend a portion of the reserve.   Extension or special session The House minority had been pushing for a one-day extension of the session, but the Senate rejected that notion. With the clock nearing midnight and the constitutional end of the session, the Senate voted to adjourn, leaving no alternative for the House but to adjourn as well. Walker had previously vowed to call lawmakers into special session, and Rep. Sam Kito, D-Juneau, said the choice to enter a special session rather than extend the regular session is a strategic one for minority Democrats. The end of the regular session means every bill not on the governor’s special-session agenda will die. “They would still be there in an extended session,” Kito said. Among the bills that concerned Democrats was House Bill 379, which would have eliminated merit raises for state employees when oil prices are low. He called that bill “a distraction from trying to get a funded and sustainable budget” and said lawmakers “need to focus on trying to make sure the budget is funded and that we have the ability to pay for that budget.” House Majority Leader Charisse Millett, R-Anchorage, said the end of the regular session means “a lot of lost work” because every bill on the special session agenda must now be reintroduced, considered by committee, and advance to a floor vote in a deliberate process. “To not be able to extend for 10 days, which I think was a reasonable ask … is incredibly unfortunate,” she said. Kito disagreed. “I don’t know that they really slow down that much because we’ve done a lot of the work to this point,” he said.   Shutdown’s effects loom The Alaska Constitution implies that lawmakers must pass a budget each year, but it does not specifically state when that budget must be approved. “I think as long as we have a budget passed by … June 31, we have met our constitutional obligations,” Johnson said. “I don’t know if there’s a time limit on it,” Chenault said. While lawmakers may not be required to approve a budget until the final day of June, Alaskans will begin seeing the effects much sooner. Last year, thousands of state employees began receiving layoff warnings as early as June 1. Union contracts require 30 days’ notice before a layoff, and Chenault said state employees should expect to receive those notices again this year. Even if the special session moves quickly when it begins on May 23, he said he expects the state will need several days of advance planning to prepare, then mail those ‘pink slip’ layoff notices. If the Legislature doesn’t finish its work by the middle of next week ─ something that may not even be technically possible ─ the pink slips will be in the mail. If the Legislature can’t finish its work in the 30-day special session, many of those pink slips will become more than just warnings.   Contact Empire reporter James Brooks at [email protected] or 523-2265.  

Senate approves $1.6B state construction budget

JUNEAU — The Alaska Senate has voted 16-4 to send the state’s $1.6 billion capital construction budget to the House. The $1.6 billion budget is in many ways a bare-bones appropriation and went unchanged from a version previously approved by the Senate Finance Committee. Of the budget, $1.3 billion will be funded by federal dollars administered by the state. Only $77.5 million will be spent in undesignated general-fund dollars as matching funds needed to unlock that federal money. The remainder of the budget will be funded with various other state accounts. “It’s tough times; it requires tough decisions, and the Senate has risen to the occasion,” said Sen. Anna MacKinnon, R-Anchorage. Most of the budget is allocated for transportation-related construction projects, which are matched at better than a 9-to-1 rate by the federal government. The biggest point of contention in the budget was the lack of a $7.2 million appropriation for the Kivalina school in the Northwest Arctic Borough. Gov. Bill Walker had requested $7.2 million to finalize the settlement of a lawsuit alleging unequal treatment between rural and urban school funding. According to an analysis of the settlement provided by the Alaska Department of Law, the state must provide $50.4 million for a new Kivalina school. Last year, the Legislature appropriated $43.2 million for the school. Walker’s request would have covered the remaining amount, but it was removed by the Senate Finance Committee. “Our attorneys last year gave us a different number,” MacKinnon, co-chairwoman of the finance committee, said in a floor speech. In a memo dated May 13, 2016, legislative counsel Megan Wallace wrote MacKinnon to say that the state is obliged to fund only $43.2 million. While the Legislature could choose to provide more money, Wallace concluded, “the Legislature’s decision whether to appropriate those amounts cannot and will not lead to any violation of the consent decree.” Instead of additional money for the Kivalina school, the capital budget includes a statement declaring that the Legislature believes it has already met the requirements of the settlement. That language and the removal of the Kivalina money was opposed by members of the four-member Democratic Senate minority and Sen. Donny Olson, D-Nome and a member of the Senate majority. Olson represents Kivalina in the Senate. The budget also includes $12.5 million to purchase an Anchorage office building for use by the Legislature. Speaking on the Senate floor, Sen. Gary Stevens, R-Kodiak and chairman of the Legislative Council, implied that the purchase is the best of a series of bad options for the Legislature. It cannot purchase its existing downtown Anchorage building because of a veto threat from the governor. It cannot continue to lease the downtown building because the lease was ruled illegal. Moving into the state-owned Atwood Building would require renovating that structure and finding interim space for lawmakers while the renovations take place. The Senate Minority offered an amendment to strip the $12.5 million from the budget, but that was rejected 4-16. Members of the Senate Majority said that on a square-foot basis, the $12.5 million purchase will work out to 57 cents a square foot. Sen. Bill Wielechowski, D-Anchorage, retorted that on a square foot basis, the new building is so large that every Anchorage legislator would be getting 2,000 to 3,000 square feet of office space. “Do you really need 2-3,000 square feet per legislator?” he asked. Members of the Senate majority also rejected amendments that would have de-funded the Knik Arm Bridge and Bragaw Road extension projects in Anchorage. The capital budget moves to the House for consideration.  

Last-minute substitute to oil tax credit bill passes House

JUNEAU — After a month of debate, the Alaska House of Representatives has approved legislation that cuts the annual state subsidy for the oil and gas industry. In a 25-12 vote, the House approved a modified version of House Bill 247, proposed by a pair of Republicans: Rep. Tammie Wilson, R-North Pole; and Rep. Paul Seaton, R-Homer. With an amendment, the pair tossed out a version proposed by the House Rules Committee and substituted their own. The new bill is an ambitious compromise proposal that incorporates Democratic and Republican measures alike. “We were able to get to that common place where we could agree,” Seaton said. “Everybody was a little bit out of their comfort zone, but it was, you know, a compromise.” The Wilson-Seaton proposal, according to a Department of Revenue analysis, will save between $5 million and $25 million in the fiscal year that starts July 1. Savings rise in subsequent years, peaking as high as $470 million in fiscal year 2021. Gov. Walker’s original version of HB 247 promised savings as high as $305 million in the next fiscal year, with savings rising to as much as $515 million in fiscal year 2019. The Rules Committee’s version promised savings of up to $10 million in the next fiscal year, rising to $370 million by fiscal year 2022. The bill is the second-largest part of a plan to solve Alaska’s $4 billion annual deficit, and its passage removes a key stumbling block for further budget negotiations. A carry-forward problem The state subsidizes oil and gas operations in Alaska with a series of different-flavored tax credits. Some are refundable, meaning they are effectively worth cash. Others can be sold or traded to other companies and used to erase the taxes a company would otherwise pay to the state. One of the biggest problems in the system is that oil prices are so low that North Slope oil producers are losing money with every barrel they pump through the trans-Alaska Pipeline System. That makes them eligible for a credit intended just for companies starting up operations — a period when a company would be expected to invest in new equipment and spend more than it earns in production. These “net operating loss” credits, combined with a loophole in the state’s existing tax system (which was created in 2013 through Senate Bill 21), allow producers to reduce their effective production tax rate to zero. The Wilson-Seaton proposal forbids companies producing more than 15,000 barrels of oil per day from collecting net operating loss credits. That only solves part of the issue. By the end of the fiscal year, companies will have already earned hundreds of millions of dollars in these credits, which can be rolled forward to future years. That could wipe out much of the state’s oil tax revenue for years to come. According to Department of Revenue estimates, Walker’s version of HB 247 would have left companies with more than $1.2 billion in credits by 2020. The rules committee version would have reduced that stockpile to $685 million. The Wilson-Seaton proposal reduces it to $516 million by 2020 and eradicates it entirely by 2024, something no other plan does. “That’s a huge fiscal impact,” Seaton said. Investment as solution Under the Wilson-Seaton proposal, oil companies would be encouraged to sell their outstanding credits for cash, something they might need as oil prices stay low. The buyer would be the Alaska Retirement Management Board, which governs the state’s public employee retirement system. The ARM Board, as it is known, could offer 60 cents on the dollar for the credits. That might be attractive for cash-strapped companies. In turn, the state would buy back the credits over time from the ARM Board at 70 cents on the dollar. That allows the state to spread out the expense and it guarantees the public retirement system a 10 percent return on its investment. According to a memo dated May 11 from Alaska Department of Revenue Commissioner Randall Hoffbeck and supplied by Seaton: “I have reviewed the language of the amendment with Gary Bader, (Chief Investment Officer) for the ARM Board, and we agree that as proposed this would be a viable investment for the ARMB and support this amendment.” Changes in Cook Inlet Until oil prices plunged and net operating loss credits became a problem, drilling operations in Cook Inlet, which produces natural gas for use in Anchorage and the Kenai Peninsula, accounted for about half the state’s annual subsidies to the oil and gas industry. According to figures from the Department of Revenue, oil and gas companies spent $1.09 billion in Cook Inlet between fiscal year 2007 and fiscal year 2015. About $450 million of that was provided by the state. Those subsidies were implemented when it appeared Anchorage was in danger of running out of natural gas, its principal source of electric power and home heating. Rep. Liz Vazquez, R-Anchorage, was a board member of Chugach Electric, Anchorage’s principal power company. Speaking on the House floor, she said the company was within six months of signing a long-term deal to import natural gas from overseas. Under the Wilson-Seaton proposal, all Cook Inlet subsidies will expire by Jan. 1, 2018, and limits on oil and gas taxes in the region (which has a different, much lighter tax structure than the North Slope) will expire in 2019. The Wilson-Seaton proposal calls for a Legislative working group to come up with a new Cook Inlet tax and subsidy system before that expiration. Opposition on the floor While House Bill 247 passed out of the House with more than the minimum 21 votes needed, it was a close-run thing. The rules committee’s version of the bill was on the agenda when the House convened its Friday session, and the pair of Republicans had to offer their plan as an amendment overwriting that rules committee proposal. The amendment passed by a single vote, 21-16. “To me, this is a recipe for disaster,” said Rep. David Talerico, R-Healy, of the Wilson-Seaton plan. Talerico and others in the House criticized the idea of limiting net operating loss credits to companies producing less than 15,000 barrels of oil. Doing so would keep the North Slope’s three big producers — ConocoPhillips, BP, and Exxon — from receiving loss credits. “Over the next few years, we need to keep oil in the pipeline,” Talerico said. Rep. Lance Pruitt, R-Anchorage, went even farther. “This is a jobs bill, if the job you’re talking about is dismantling the pipeline,” he said. Rep. Craig Johnson, R-Anchorage and chairman of the Rules Committee, said he’s concerned that taking away subsidies in Cook Inlet will lead to higher natural gas prices in Anchorage. “This is particularly troubling to me, living in Anchorage,” he said. Despite the opposition, the amendment vote passed, and so did the vote to send the bill to the Senate. Work in progress Wilson said the work to craft an alternative to the Rules Committee’s work started about two and a half weeks ago, about the time the House and Senate were forced from their Capitol offices by construction. In a story last month, Nat Herz of the Alaska Dispatch News described how Wilson and Seaton ran into each other while shopping at Juneau’s Fred Meyer grocery store and began talking. Wilson and Seaton are at the opposite ends of the Republican Party’s split — Wilson toward the Tea Party end and Seaton toward the moderate end. While they might differ on other subjects, they found common ground on the issue of subsidies to the oil and gas industry. “For us, we started the conversation,” Wilson said, but the proposal wouldn’t have gotten as far as it did without others’ support. “This is a group that did it,” she said. “It wasn’t just the two of us.” The Senate is scheduled to hear the bill at 9:30 a.m. Saturday. “I expect they will tweak it,” Wilson said. In the House, the vote is expected to open the door to other matters. “We hope it breaks things open,” Seaton said. “The budgetary things are what’s next, and hopefully the finance committee can start working on other things now.” Like an operating budget, Wilson added.  

Board advances in-store pot use

The Alaska Marijuana Control Board has voted unanimously to ask the public to comment on draft regulations allowing recreational marijuana users to enjoy pot products inside retail stores. The regulations are the first of their kind in the United States and are a rough equivalent to the nation’s first legal pot cafes. Once formalized, public comment will open in the coming weeks. After the public comment period expires, the board will consider the regulations again before approving or disavowing them for good. “I think this is probably one of the provisions that is going to give elected officials the most angst, and I don’t want to disappoint them by doing it wrong,” said board chairman Bruce Schulte before joining other members in approving the draft. When Alaska voters approved recreational marijuana use in 2014 with Ballot Measure 2, the state began a two-year process leading to the opening of the state’s first retail marijuana stores. The first commercial marijuana cultivation businesses will receive their licenses in the second week of June; the first retail businesses will begin selling marijuana in the second week of September. As the board began drafting regulations to define the new industry, prospective business owners approached the board and said they were concerned that tourists and renters might not have a place to use legal marijuana. The state permits the sale of marijuana, but consumption “in public” is prohibited, and the state has adopted an expansive definition of “public” that leaves few legal spaces outside one’s home. In response to concerns about selling people marijuana they have no place to use, the board voted 3-2 in November to carve a narrow exemption into the definition of “public.” That exemption allows retail stores to apply for an “onsite consumption endorsement” to their licenses. If a store receives that endorsement, it can set aside an area for people to consume marijuana. Under the draft regulations sent for public comment, the area must be enclosed, with a separate door, a ventilation system and oversight by staff. On-site consumers will be limited to a limited “menu” and held to a much tighter purchase limit than regular retail customers in order to prevent stoned driving and other problems with overconsumption. The on-site consumption area will also be restricted in ways similar to alcohol bars. Stores will not be able to give away marijuana, serve intoxicated customers, give “happy hour” discounts or discounts for special customers. In Juneau, the consumption area will also be subject to the City and Borough of Juneau’s strict antismoking rules, which prohibit indoor tobacco and marijuana use, even if an area is set aside for that use. Without a change to the CBJ’s regulations, a consumption area in Juneau would be open to edible and drinkable marijuana products only. When the board voted to create the on-site endorsement in November, board member Loren Jones, also a City and Borough of Juneau assemblyman, voted against the idea. On Wednesday, he joined all other board members in voting to send the regulations to public comment. He said by phone that his views on the endorsement haven’t changed, but he thinks it’s time for the public to have its say. “I’m hoping there will be enough comments related to the definition of public” to change the board’s mind, he said. In other business Wednesday, the board approved several companies planning to offer marijuana-handling training required of all marijuana licensees and store employees. As of April 20, the Alcohol and Marijuana Control Office has received 277 applications for marijuana licenses. One hundred and sixty-three of those are for cultivation facilities; three are for testing facilities. Retail and marijuana product manufacturing licenses (bakeries and the like) make up the remainder. The board is scheduled to meet next on June 9 to approve the first licenses for marijuana cultivation and testing businesses. • Contact reporter James Brooks at [email protected]    

Legislature heading for overtime

JUNEAU — The second session of the 29th Alaska Legislature reaches its 90th day today, but don’t expect lawmakers to be finished with their work anytime soon. Whether lawmakers decide to spend extra days in the regular session or decide to call an immediate special session, all signs indicate that deep divisions on the budget and how to resolve a $4.1 billion annual deficit mean no solution will come in time to meet the standards of a voter initiative approved in 2006. “I don’t want to diminish the optimism for the end of the session,” Gov. Bill Walker said on KINY-AM Thursday about the call for a special session, but “that decision will probably be happening Sunday night.” Ninety-day sessions started with the 2008 Alaska Legislature, and this is the ninth. Only two have finished before midnight on the morning of Day 91 without being followed immediately by a special session: 2009 and 2013. The 2010 session ended close to the deadline: It finished just after midnight. This year, the legislative logjam is the issue of subsidies for the oil and gas industry. Next year, according to estimates from the Alaska Department of Revenue, the state of Alaska will be liable for $775 million in tax credits owed to oil and gas producers and drillers. With the state of Alaska facing a $4.1 billion annual deficit, many in the Alaska Legislature are requiring significant cuts to that subsidy before they vote for tax increases or spending from the Alaska Permanent Fund. “For me and for us, this oil tax bill really is the foundation for everything else,” said Rep. Chris Tuck, D-Anchorage and the House Minority leader. “We simply do not want to see Alaskans … give up their Permanent Fund for the oil industry.” On the opposite side are lawmakers representing districts whose local economies rely upon the oil industry. They contend that with oil prices in the basement and oil companies losing money, cutting subsidies is the equivalent of cutting jobs — and jobs lost now mean lower production when oil prices rebound. “I’m willing to give a little bit, but I think we need to be very careful with the changes we make to the tax structure,” said Speaker of the House Mike Chenault, R-Nikiski. In an ordinary year, the Legislature would simply work past the 90-day limit, ignoring the voter-imposed statute and holding to the 121-day limit in the Alaska Constitution. This year, that isn’t possible. Construction on the third and final year of seismic reinforcements to the Alaska Capitol is expected to begin later this week, making continued Legislative work impossible. Many Anchorage lawmakers support moving the session to Anchorage if needed — a resolution stating as much has passed the Senate and is awaiting a vote in the House. Juneau lawmakers are hoping legislators move simply down Main Street, perhaps to Centennial Hall, which has figured into contingency plans written by the City and Borough of Juneau. If the Legislature stays on course for overtime, lawmakers will be on the move. The only question is whether they’ll move down the street or north in the state. “We’ll make that decision Sunday night, as far as where, if there is a need for the special session,” Walker said.

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]  

Pages

Subscribe to RSS - James Brooks