House-passed state budget in Senate; legislators grapple with $600 million deficit

With the state operating budgets out of the state House and in the Senate, and carrying with it a hefty Permanent Fund Dividend, legislative leaders are now grappling with how to fund a $600 million deficit in the House budget and also add money for schools and a state capital budget.

Senate leaders held closed-door meetings with Gov. Mike Dunleavy Monday and Tuesday in which new revenues were discussed. In a briefing for reporters Tuesday Senate President Gary Stevens, R-Kodiak, said the governor is interested in a state sales tax, among other options.

The idea was mentioned among others in the meeting but this shouldn’t be interpreted as the governor endorsing the tax, Stevens said. Other ideas are on the table, including a bill in the senate that would increase oil and gas taxes.

The governor, “is not saying he supports a sales tax but he just wants ideas to get us out of this pickle,” with the deficit,” said Olson, who sat in on the meetings with Dunleavy.

It’s a stark choice, Stevens said, PFD funding against money for schools. “A high PFD could mean no new money for schools,” he said.

If the governor were to accept a modified dividend plan, about half what the House approved, if would reduce the deficit need for taxes and free up money for other needs.

“The PFD is very important to people in my district but people also understand we’ve got to live within our means and not get caught short next year,” in delivering essential services,” Olson said in the briefing.

Meanwhile the Legislature’s budget work is basically on schedule despite the House having a one-week delay in getting its spending plan over to the Senate, Sen. Bert Stedman, R-Sitka, said in the Tuesday briefing. Stedman is the Senate cochair in charge of the operating budget.

Stedman doesn’t see any real obstacles to passing the budget by May 17, the Legislature’s required adjournment date. Olson, the Senate Finance cochair for bills, said there is little appetite for a session extension beyond the required adjournment, or a special session.

On related issues, the push in the Senate for a large increase in the Base Student Allocation, or BSA, for schools continues. The Senate Finance Committee held an extra public hearing on Tuesday for SB 52, the Senate Education Committee bill that increases the BSA, the formula that guides state school funding. The hearing went from 1:30 p.m. until late afternoon with the bulk of the testimony in favor of the increase. This followed an equally long hearing the week before.

The House budget includes $175 million in one-time funding for schools, which is equal to a $680 increase per student in the BSA, which is now about $5,900 per student, but only for next year. SB 52, the Senate bill, would add $1,000 per student to the BSA next year, an additional $348 per student in the year after to fully adjust for inflation since 2017, and then, the year after an automatic escalator of the BSA tied to the federal cost-of-living index, or CPI for Alaska.

At that point state funding for schools would be about $432 million per year above the approximate $1.2 billion annually with the current formula. The final outcome of this will depend on final budget negotiations between the Senate and House.

House education cochair Rep. Jamie Allard, R-Eagle River, has said she could be open to a permanent increase in the formula but only after a review of the state foundation program for schools. Allard’s view generally represents that of other House Republican leaders.

However, Stevens and Stedman said in the Tuesday briefing that a rewrite in the foundation program is out of the question, at least for this year, because of its complexity. “The last time we did a foundation program rewrite it took two years to on it and four years to do it,” Stedman said.

In other matters, legislative committees are working on bills proposed by Mat-Su legislators. In one proposal, the House Labor and Committee moved HB 88, by Rep. George Rauscher, R-Palmer, on to the House Judiciary Committee on April 17. The bill requires employers in warehouse operations who pay workers on a piece rate to inform them of expectations.

It’s not known that this practice is followed in Alaska now but the legislation is in anticipation of a company like Amazon, which does do this, opening an Alaska distribution center. The bill provide protections against methods employers might adopt to speed up production and save on costs, Rauscher told the labor and commerce committee.

In another development, a bill establishing an Alaska lumber grading program moved from Senate Finance Committee April 18, and is now in Senate Rules Committee. Sen. Jesse Bjorkman, R-Kenai, is the sponsor, but the House version, HB 93 by Rep. Jesse Sumner, R-Wasilla, is in the House Finance Committee.

The Alaska lumber grading program would be established by the Alaska Division of Forestry and would be acceptable to institutions financing of residential home construction in the state. Currently only lumber graded by groups like the Western Wood Products Association, and imported from out-of-state, is acceptable for conventional financing.

In hearings, Sen. David Wilson, R-Mat-Su, asked whether the wood can withstand seismic events and winds. Bjorkman said Alaska trees, particularly slow-growing spruce, produce lumber of superior strength. Structuresbuiklt with local lumber would be as durable as those built from Lower 48 lumber.

Another bill sponsored by Rep. Kevin McCabe, R-Big Lake, would make payments in gold or silver legal in Alaska if vendors agree to accept the payment. HB 3 has gone through the House Community and Regional Affairs Committee and State Affairs committees and is now under review in the House Finance committee, which held hearings on April 17.

McCabe’s bill would also restrict boroughs and cities in imposing sales taxes on purchases of gold or silver.