Gov. seeks targeting spending increases in new budget

Gov. Bill Walker introduced his proposed Fiscal Year 2019 budget Dec. 15 calling for a small decrease in overall spending but targeted increases for public safety, substance abuse treatment and deferred maintenance on public buildings and infrastructure.

Spending by state agencies would rise less than one percent, the governor said, but that would be offset by other reductions, such as a change in the way oil exploration tax credits would be funded. Overall spending of state funds totals $4.7 billion, down from $4.8 billion in the current year budget.

The additions to public safety would include two additional prosecutors in Anchorage, one new statewide trooper investigator, new prosecutors in Kotzebue and Bethel, and a trooper investigator in Bethel, the governors said. More money for public defenders is also included in the budget.

One upward pressure on the budget is Medicaid, the joint state-federal program that helps provide health coverage for low and moderate-income Alaskans. Medicaid spending by the state would rise by $27.2 million, pushed up by enrollment in the program because of the recession.

New economic development spending includes $800 million over three years for deferred maintenance on schools, university and state buildings, which increases to $1.4 billion when other funds, federal and local, are included, the governor said.

To pay for the state’s $800 million share Walker proposes a temporary, three-year payroll tax similar to one put forth earlier this fall for the Legislature’s fourth special session. Lawmakers did not act on the proposal.

“This budget is about public safety and putting Alaskans to work,” the governor said Friday in a press conference. “By making adjustments elsewhere in the budget we are adding $34 million for the additional prosecutors, criminal investigators and troopers. We have a lot of public safety issues. Alaskans don’t feel safe, and this bothers me,” Walker said.

The budget also allocates $18 million over three years for additional drug treatment and detox facilities. The governor said the revenues from the new temporary payroll tax will go only to the deferred maintenance projects. “We aren’t going to grow government,” he said.

Deferred maintenance projects are in school districts and municipalities across the state and are mostly small and well-suited to local contractors and engineering firms that are now scrambling for work. “The economy is down and now is the best time to do this kind of thing,” Walker said. Estimates are that the package will put 1,000 people back to work.

In other proposals, the state administration would pay off an accumulated $1 billion in past oil tax credit liabilities with a special purpose bond mechanism that would pay the credits at a discount equal to the state’s cost of issuing and paying for the bonds, state revenue commissioner Sheldon Fisher said.

The unpaid tax credits are a stain on the state’s financial reputation because they were agreed to in contracts under a state oil exploration incentive program that is now ended. Payments had to be reduced sharply because if of the state’s financial problems, and the effect of that was to leave some companies stranded with unfinished oil projects.

“These are people who can put new oil into the pipeline. They are all smaller companies who are not yet producing or producing less than 50,000 barrels per day,” Walker said. The big producers were not eligible for these tax credits.”

The tax credits are now scheduled to be paid off over a six to seven year period but the bond proposal would allow them to get money sooner, Fisher said. The amount of the discount has yet to be determined, but some oil explorers holding the tax credits are already selling the tax credits at discounts, typically to producing companies who use the credits to reduce their state taxes.

In other proposals, the governor would increase Permanent Fund dividend payments from $1,100 this year to $1,285 next year, generally following a proposed new formula for the dividend payment laid out in bills that have passed both the House and Senate but have not yet been given final passage.

Allocations for the dividend in the Senate and House bill are slightly difference, so the administration chose a “compromise” amount between the two versions that would result in a $1,285 PFD check in 2018, state budget director Pat Pitney said.

The House and Senate bills would also restructure the way Permanent Fund income is managed and allow some of the Fund’s annual income to be used to support the state budget. Pitney said the governor’s overall plan for funding the FY 2019 budget follows the plan laid out in the House and Senate bills, which are similar.

The plan for FY 2019 would use money from the Permanent Fund earnings limited to the payout formula in the bills, which would ensure the Fund’s long-term growth, Pitney said. The governor is also proposing an “inflation-proofing” payment to the Permanent Fund in FY 2019, which is required by state law but which has not been done in the last two years because of the fiscal crisis.

Two new ideas in the governor’s budget would attempt new discipline in the state budget process. If the governor does not propose a budget by Dec. 15, which is now required, the chief executive would a suffer a pay decrease under the plan. Similarly, the Legislature must pass a budget within 90 days or lawmakers’ daily per diem and salary would be cut.

Legislators will have to agree to the new pay plan by passing a bill, and whether that is likely is unknown. State law now requires the Legislature to adjourn its regular session by the 90th day, which is typically in mid-April. However, there are no penalties attached to this. The binding limit to the session is 120 days, which is in the state constitution.

Any bill approved after 120 days would be legally voided. The 120th day would typically fall in mid-May.

Another new proposal from Walker is a two-year state budget process so that legislators would focus on budget matters in one session and policy issues in the next. Since the state constitution requires an annual budget there would still technically be a budget bill passed for each year, but the work would mostly be done in one session, budget director Pat Pitney said.

“Our budget process is broken,” Walker said. The delays in the past few years, with lawmakers tangled up in unrelated controversies and not passing a budget until June, near the start of the new fiscal year in July, has caused “pink slips” to be sent to state employees, creating uncertainties and hardships for families.

In all years the budget has been passed, sometimes at the last minute, and the pink slips are pulled back. It’s still disconcerting, though.

“If they (legislators) can’t get it done in 90 days there should be consequences,” the governor said. The state budget uncertainty has effects on businesses, too. “Car dealers have asked me, ‘who’s going to buy my cars when they’re getting pink slips?” Walker said.