Budgeting for schools draws sparks early in legislative session

The Legislature is plodding along through its early days in Juneau, which is typical for the early part of the annual session. Work on legislation is underway, however, and bills are starting to move from committees.

The only real disagreements so far, a forerunner of budget debates yet to some, emerged last week in the state House over a bill that would provide state funds for school districts early and appropriate the approximate $1.2 billion needed from the Constitutional Budget Reserve, or CBR, a state savings account.

Few lawmakers argue with the basic idea of making funds available early so school administrators can plan budgets. The disagreement came over taking money from the CBR fund for education, which means that every other state entity including the university, state troopers and other agencies, will have to make do with what’s left in the general fund.

How much that will be won’t be known until late spring when an updated revenue forecast is made.

House Bill 287 did pass the House 32 to 5 Feb. 6 but without the CBR draw, which needed a “super-majority” three-quarters vote of the 40 House members to be approved (an equal percent of the 20 senators is required). Republicans in the House withheld their support, so the early funding bill passed without the appropriation.

Although most House members supported the bill in its final passage one of the votes on an amendment put forth by a Republican, Rep. Lora Reinbold, R-Eagle River, came within one vote of being approved, an illustration of the narrow control the House Majority has on voting on the House floor. There are 22 members of 40 in the House in the majority, with 17 Democrats, two Independents and three Republicans aligned with the Majority.

Passage of HB 287 means early funding can still be done but it must be made from state general funds instead of the cash reserves in the CBR, said Rep. Jennifer Johnston. “This bill, as we have passed it does support early funding, but out of the general fund rather than the CBR,” Johnston said at a House Minority press briefing last Thursday.

“What it does is give first priority for money from the general fund to schools,” she said.

What the Senate will do with the bill is unclear, although a similar early-funding measure in that body, Sen. Gary Stevens’ SB 131, is pending in the Senate Finance Committee. Stevens’ bill is structured differently than the House bill and draws on the general fund, not the CBR.

The dust up in the House over HB 287 must really be viewed as part of a broader chess game among lawmakers over funding of the entire Fiscal 2018 budget, of which school funding is a big part. A push by the Democrat-led House and Gov. Bill Walker for an additional revenue source, through a new broad-based state tax, is being resisted in the Republican-led Senate.

The one new tax on the table is the governor’s proposed employment, or wage, tax, introduced Jan. 16 as HB 281 in the House and SB 139 in the Senate. It would impose a tax on employed Alaskans, also catching nonresident workers, capped at about $2,200 per year. The bills have seen no action since they were introduced.

The employment tax is a more modest proposal than the personal income tax bill passed last year in HB 115 but killed in the Senate, which is led by Republicans. The personal income tax would have raised about twice what the governor’s employment tax would bring in.

This year House leaders say they still support a “broad-based” tax of some kind but have not yet signed on to supporting the governor’s proposal. Last week Democrats in the Senate said they oppose the employment tax, mainly because of its more substantial effects on lower-income compared with higher-income Alaskans.

But they said they would support some other tax, presumably a more progressive measure like an income tax. Senate Minority Leader Berta Gardner and Sen. Tom Begich, both Democrats from Anchorage, along with Juneau Democrat Sen. Dennis Egan, made comments at a Senate Democrats’ press briefing last week.

Meanwhile, Senate Republicans appear to be holding firm against any kind of tax. Senate President Pete Kelly, R-Fairbanks, said he believes that a plan passed by the Senate last year to allow use of a portion of Permanent Fund earnings for the budget, combined with a spending cap, will see the budget deficit erased in a few years.

Senate Bill 26, passed by the Senate and pending in the House, would make about $2 billion a year of Fund earnings available for the budget. The state’s existing revenues will total about $2 billion, which makes about $4 billion available for spending.

If the state budget, in terms of unrestricted general funds, is kept at about $4.5 billion, essentially at the current level, the deficit will be reduced to about $500 million compared with $2 billion-plus annual deficits of recent years, Kelly said.

“Our economy is in recession and is just starting to recover. We don’t need to hit people with a new tax now, taking money from private sector just to support government,” Kelly said.

The House doesn’t argue with using Permanent Fund earnings – it passed its own version of that plan last year , in HB 115, but the House Majority wants a broad-based tax of some kind to eliminate the annual deficit, House leaders have said. That would retain $1 billion to $2 billion in the CBR, which is the amount is needed to fund state cash-flow needs during the year, state budget director Pat Pitney has said.

Under Kelly’s Senate plan the CBR could be drained. In that were to happen, Pitney said the state would have to fund its week-to-week cash draws, for payroll and other expense, by selling revenue anticipation notes, essentially borrowing the money.