Alaska State Capitol

This Legislature is two weeks away from its scheduled mid-May adjournment but there’s no clarity yet on how the big issues will be settled.

Will Gov. Mike Dunleavy deliver on his campaign promise of a $3,000 Permanent Fund Dividend?

Will Dunleavy actually make the massive cuts to the budget he has proposed, to education, the university, and state health care spending? Will he tie up the state ferries on Oct. 1 to save money?

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Those spending reductions are needed to pay for the $3,000 PFD.

Also, will the governor get his constitutional amendments? He has proposed three: One is to put the PFD and its funding formula into the constitution (it is now in a state law); a second is to enact a cap on the state budget in the constitution, and the third is requiring a public vote before any tax is approved (the Legislature and governor now have the authority to approve new taxes).

Legislators will not approve Dunleavy’s amendments as they are. The public approval of new taxes is considered a non-starter. On the spending limit and PFD there are proposals to enact these in statutes at least for this year.

Finally, will Dunleavy get his package of bills toughening penalties on crime? His anti-crime agenda is built around a slogan of “Repeal SB 91,” an unpopular criminal justice reform bill passed by the Legislature in 2016.

Ironically, the Legislature repealed much of SB 91 in 2017 and 2018. Dunleavy’s crime bills mostly add jail time to sentences, which will drive up prison costs.

Here’s where things stand, two weeks from adjournment:

Legislators have spent a lot of time on the constitutional amendments and crime bills and those may be unfinished at adjournment. Dunleavy may call a special session, or the measures may be left to 2020.

That doesn’t matter so much for the constitutional amendments because those can’t go before voters until the November 2020 general election anyway.

On the budget, the governor proposed a Fiscal Year 2020 plan with spending of $3.59 billion in state funds, down from $4.57 billion in the current budget year, FY 2019. Dunleavy’s plan is $980 million below the current year.

FY 2019 ends June 30 and FY 2020 begins July 1.

Under the state constitution the Legislature actually writes the budget, working from a proposal made by the governor. In its version of the operating budget the state House rejected the bulk of Dunleavy’s reductions, approving a plan for $4.3 billion in state funds.

The Senate Finance Committee largely followed the House with a budget of $4.29 billion. The committee’s budget is expected to pass the full Senate at about that amount.

Some differences in the House and Senate budgets include the House proposal to fund state school debt reimbursement to municipoalities at only 50 percent of the agreed-on state contribution while the Senate funded it at 100 percent. The governor proposeas eliminating the reimbursement.

Cutting school debt reimbursement will have the effect of driving up municipal property taxes because local governments are legally obligated to pay school bonds. The state contribution was not a requirement of the state, although local voters may view it as the state welching on a commitment.

On another hot-button issue, the governor has proposed tying up state ferries on Oct. 1, cutting winter service to isolated coastal communities. The House left the winter ferry service intact while the Senate cut it to a very limited service.

On the University of Alaska, Dunleavy proposed cutting $134 million of the university’s current $327 million in state funds, to s funding level of $193 million. The House gave the university $316.9 million, a $10 million reduction, while the Senate Finance Committee proposed $322 million, a $5 million cut.

Dunleavy also proposed cuts in health and social services spending and in K-12 education, which the House and Senate also rejected.

After the Senate passes its operating budget a House-Senate conference committee will meet to agree on a compromise spending package, which will then go to the governor. This will likely happen just before the mid-May adjournment.

After that Dunleavy will have a period of time to veto parts of the budget. His options are actually somewhat limited, however. In K-12 education the Legislature voted last year to “forward fund” money for school district budgets in FY 2020, so big cuts to school funding may be off the table, at least for this year.

The governor could always impound the money, refusing to release it, but this would spark litigation. It would send school districts into panic mode, too.

The options in reducing state health care spending, which is mostly for Medicaid, are limited too because Medicaid is a joint federal-state program and the state must get permission from the federal Centers for Medicaid and Medicare to make major changes.

Dunleavy could still make big cuts to the ferry system, tying up the ships, and he could still take a big axe to the university budget. He can also veto all of the state money for municipal school debt reimbursement.

There’s always the option of taking money from other state agencies, like natural resources, fish and game and public safety, but there’s not much money to be gained and those are agencies Dunleavy has committed to support because of their importance to the economy and public protection.

As the session winds down, however, most of the angst in the capitol is over the dividend. Absent drawing more money from the Permanent Fund’s earnings reserve there is a direct relationship between the size of the budget the size of the PFD.

The 5.25 percent authorized draw from Permanent Fund earnings, which is allowed under Senate Bill 26 passed by the Legislature last year, provides about $2.9 billion for FY 2020 but it must help pay for the budget as well as the PFD, and the Legislature must decide how much for either. A larger budget leaves only enough money for a smaller dividend, and conversely a large PFD squeezes the money available for the budget.

For Dunleavy, getting a $3,000 dividend means huge cuts in spending. The state House opted to leave spending at higher levels, leaving money for a more modest PFD of about $1,200.

In a surprise move, the Senate is considering a larger budget and a $3,000 PFD, funding the larger dividend with more money taken from Permanent Fund earnings.

This could push the withdrawal from the Fund earnings to 6.3 percent to 6.5 percent of market value, according to some calculations, exceeding the 5.25 percent maximum draw allowed in SB 26.

The House may hold out for a smaller PFD, to keep more money in the earnings reserve. This is one issue that will play put before adjournment.

By using his veto on spending the governor, and to have a $3,000 PFD, Dunleavy can bring the required draw from Fund earnings back down to 5.25 percent. But to do that the vetoes would have to be large. That would essentially bring things full circle, so that the governor gets most of what he wants, a large PFD and a smaller budget.

Still, there are two weeks left. Things could change.


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