Alaska State Seal

The outlook remains murky for the state budget and this year’s Permanent Fund Dividend as the countdown continues toward a July 1 state government shutdown if the Legislature and governor have not agreed on a budget.

State officials put out an advisory Wednesday on how a temporary shutdown might affect health insurance and retirement benefits for state workers.

Health insurance for non-union state workers, who are covered by Alaska Care, will be maintained for a month, or until July 31 if the shutdown happens July 1, according to information from Gov. Mike Dunleavy’s office.

State employees will be placed on furlough status, which means there will be no penalty on retirement or leave benefits, the statement said.

For certain union state employees who are laid off instead of furloughed, layoff notices will be sent June 14 if the budget is still unresolved. In cases of layoffs, unused leave must be paid within seven days of the layoff, but discussions on this are still under way with public employee unions on this, the statement from the governor’s office said.

The key to resolving these issues, the governor says, is the Legislature’s agreement to a $3,000 PFD the governor has requested instead of a smaller amount many lawmakers support.

A majority of the 40-member state House appear to support the smaller amount, but the state Senate is evenly split among its 20 members.

In a narrow 10-8 vote last Tuesday the Senate rejected a bill authorizing a $3,000 PFD but the measure may come back up for another vote Friday, with Mat-Su Republican senator Mike Shower perhaps casting the deciding 11th vote to pass the PFD bill.

Meanwhile, the budget and PFD impasse are causing other waves. State officials have cut payments to health care providers for Medicaid services because a supplemental budget bill is also in the logjam, and state funds to make the payments have been exhausted.

It’s likely a temporary problem – at some point the budgets will be approved – but even a short-term suspension of payments can create financial problems for smaller health providers like nursing homes who operate on thin margins and are typically heavily-reliant on senior citizens on Medicaid, Becky Hultberg, executive director of the Alaska State Hospital and Nursing Home Association, said in a letter to legislators.

Although it’s only indirectly related to the budget issue, the governor’s plan to raise some rates at state-operated Pioneer Homes has created anxieties among elderly residents at the homes.

However, Dunleavy spokesman Matt Shuckerow told KTUU Channel 2 in Anchorage recently that the Pioneer Home rate question is still under discussion and if there are increases, they would only affect residents who can afford to pay them.

Residents who can’t afford the increases will not be ejected from the Pioneer Homes, he said.

Meanwhile, the drama in the capitol building continues. It’s unlikely the House will accept the bill at the higher amount if it winds up passing the Senate. Dunleavy has said he will veto any PFD bill that is less than $3,000.

However, such a veto would leave no authorization for a 2019 dividend unless legislators agree to include the authorization in the operating budget, a procedure that has been done before.

There could also be a new PFD authorization bill introduced in the days remaining in the special session, which is due to end June 15.

Meanwhile, the specter of a state shutdown is looming. The state has neared the brink of shutdown before, most recently two years ago when legislators were similarly arguing about the PFD and no budget had been passed.

It was averted at the last minute, but plans had been put in place for closure of all agencies except vital services like state troopers, Department of Corrections prison guards, staffs at the Pioneer’s Homes and Alaska Psychiatric Institute.

Thousands of state workers received notifications of termination, raising worries about health insurance and retirement status.

Ironically, a shutdown could also interrupt planning for the 2019 PFD checks, Angela Rodell, the Alaska Permanent Fund Corp. executive director, said.

The PFD is the core issue at stake. Dividend checks are normally issued in October by the Department of Revenue, but preparations for that must be made earlier.

Likewise, the Permanent Fund corporation, which manages the fund, must do its work to ensure funds can be transferred to the Department of Revenue, Rodell said.

Because the Fund’s earnings reserve account, from which funds would be transferred, are invested on long-term securities just like the principal of the Permanent Fund itself, a liquidation, or sale, of securities will be needed to get the cash to pay the PFDs.

If the larger $3,000 PFD is agreed on about $1.9 billion will be needed, which means that amount of securities will have to be converted to cash.

The state operating and capital budgets are still unresolved. Bills are sitting in both House and Senate and agreements can be made quickly on any remaining differences in those documents, but there is still the question of whether the governor will use his line-item veto authority to reduce the budget once it has passed the Legislature.

In February Dunleavy proposed a $3.2 billion operating budget, about $1.6 billion below current year spending, mainly to free up enough money for a $3,000 PFD. The House and Senate have agreed to cuts but not at the levels proposed by the governor.

If the governor does make major vetoes his choices could actually be somewhat limited. He has vowed to keep support for some state functions, such as public safety and management of the state’s natural resources like oil and gas, mining and fisheries.

Those budgets, while, substantial, are not the big-ticket departments like health and social services, education, the university and transportation, mainly the state ferry system.

Big cuts in those agencies will not easily be done, at least for the fiscal year starting July 1. The big item in health and social services is Medicaid, but major changes in this can’t be done without federal approval, which will take time.

Education spending is meanwhile at the center of a legal dispute between the governor and Legislature on whether lawmakers’ previous “forward funding” of the K-12 budget for state aid to school districts

Legislators say they have already funded schools for next year, but the governor claims that plan is legally defective. The big test on this will come after July and over whether Dunleavy will withhold, or impound, funds from school districts if the legal dispute is still unresolved.

The governor is already withholding distribution of $20 million approved the year before last in a similar forward-funding, and which should have been available to school districts this spring.

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