State operating budget moves to House floor, major step 2023 legislative session

The House Finance Committee moved the state operating and mental health programs budget out of committee last Thursday, March 30, after several days of work in committee on amendments.

This marks a major step in passage of the annual budget, which is a constitutional responsibility of the Legislature.

The budget bills, House Bill 39, the basic operating budget, and House Bill 41, the mental health program budget, now move to the floor of the House, where extended debate, and offers of more amendments, are expected. The next stop would be the state Senate, which has been doing its own review of the budgets submitted by Gov. Mike Dunleavy in mid-December.

Rep. DeLena Johnson, R-Palmer, a cochair of the House Finance Committee, was deeply involved in the development of the operating budget proposal.

Basically, the budget passed the House is close to what the governor recommended and the Senate’s version of the operating budget is also expected to be close to the what the governor wants and the House has approved.

There are some exceptions. One is the governor’s proposal for the state to assume primacy, or management, of U.S. Army Corps of Engineers wetlands permits. The House Finance Committee deleted the funds neede for this, giving the money instead to Head Start programs for disadvantaged young children.

The wetlands permitting program may come back to the House in the Senate version of the budget, however. A final decision will be made in a House-Senate budget conference committee that typically happens in May, near the Legislature’s adjournment date.

Having the state run wetlands permitting is a priority for the governor and for resource development groups because it means decisions on permits will be made in Alaska by people familiar with regional conditions rather thn federal officials often located out of state.

While the operating budget is well along toward passage work on the state capital, or construction, budget is just beginning. The capital budget is traditionally drafted first in the Senate, where by tradition the House takes the lead on the operating budget.

The Senate Finance Committee will draft the initial version of the capital budget working off the proposal made by the governor also in mid-December. Sen. Lyman Hoffman, D-Bethel, a Senate Finance cochair, is in charge of assembling the initial version of the capital budget.capita bill bit it will include many of his recommendations.

What is in the capital budget will also be determined by how much money is available. Some operating items are also not yet in the budget, particularly a proposal by legislators to increase state education funding through the Base Student Allocation, or BSA, a formula that guides state funding for schools.

Gov. Mike Dunleavy has his own proposal to increase education funds in the form of a bonus paid to teachers if they renew their contacts and stay on the job. Annual turnover is high among teachers and it is one factor contributing to poor student academic performance in many schools.

However, the bonuses will also cost money, so legislators will have to weigh those against the cost of increasing the overall Base Student Allocation for schools. Many argue the BSA increase, as it is proposed in s bill in the Senate, will really just make up for the erosion in school funds due to inflation in recent years.

A BSA increase is also in a bill pending in the House but it is smaller than that proposed in the Senate.

What is underlying everything, however, is the lower revenue situation faced by the state due to declines in crude oil prices. The current budget, for state Fiscal Year 2023, was premised on oil prices of $101 per barrel when legislators approve it last May.

Prices have steadily dropped through the fall and are now about $75 per barrel. The lower oil revenues have created deficits that may total $600 million to $700 million depending on how large a Permanent Fund Dividend is in the calculation.

If the annual PFD is lower this year the deficit will be smaller and legislators will have more leeway in funding certain increases, such as for schools.