Alaskans got a good idea, Monday, January 28, of how Gov. Mike Dunleavy will budget for next year based on cuts he proposed to education for the fiscal year that started July 1, 2018.

A supplemental adjusts the budget the legislature passed in the previous session.

Typically, supplemental budgets increase spending at a time when most people are focused on the upcoming year’s budget.  These backdoor spending increases draw the ire of fiscal hawks.

Dunleavy’s supplemental, SB 39, is an exception, cutting unrestricted general fund (UGF) operating expenditures by $10.6 million in FY 2019.  

“I took office with a promise to reduce State spending, put public safety first, and renew trust in government,” Dunleavy wrote in a bill transmittal letter.  “To that end, I am presenting a supplemental budget for the consideration of the Legislature that returns… $5,817,200 to the General Fund.”

To be clear, SB 39 does not just return $5.8 million to the general fund on balance; it cuts beyond that.

The line item that is drawing the most attention is a cut of $20 million to the Department of Education and Early Development (DEED).

“I think this is the one that has caused the most concern,” Sen. Donny Olson (D-Golovin) said of the cut in a Senate Finance Committee hearing Tuesday.

As part of a compromise last year, and to prevent teachers from receiving pink slips, then-Rep. Paul Seaton (R-Homer) proposed passing the education budget separately in HB 287.

The version of HB 287 that was eventually signed into law increased FY 2019 K-12 education funding by $23 million in state funds to counteract several years of flat funding.  It passed the Senate 15-4.  The House concurred in a 31-9 vote.

“Last year, the Senate and House put aside partisanship and crafted an education budget that responded to public demand for increased education resources,” Senate Minority Leader Tom Begich (D-Anchorage) explained in a press release.  “Local schools and communities have been hit hard with the high cost of energy and the lack of inflation-proofing of our funding formula.  The actions of the Governor send our education system backward, something our schools can’t afford.”

The supplemental also cuts $1.2 million UGF from State library operations for broadband access grants and $2 million from school bond debt reimbursement.

SB 39 uses the education cuts to offset $15 million UGF for FY 2018 Medicaid claims knowingly underfunded by the legislature. 

While Dunleavy focused heavily on public safety last week during his State of the State address, John Aronno noted that the only time Dunleavy mentioned education was in reference to his own career.

“Governor Dunleavy campaigned as the education Governor, among other things.  This tells me he doesn’t take his own words seriously.  This is not how you build public trust,” Begich said in his statement.

HB 287 also forward-funded education in FY 2020 with $30 million in grants.

When Sen. Lyman Hoffman (D-Bethel) asked Office of Management and Budget (OMB) Director Donna Arduin if the Dunleavy administration intends to leave that $30 million alone, she responded tellingly, “We will be addressing that on February 13 with the rest of our Fiscal Year ’20 recommendations.”

Arduin: We Didn’t Contact School Districts About Cuts

In addition to SB 39, Dunleavy introduced a “disaster supplemental” (SB 38) that will use $37 million UGF in FY 2019 to bring in $102 million in federal matching funds.  Most of that will be spent for road repair related to the November 30 earthquake.

No Senate Finance members took issue with the disaster supplemental during Tuesday’s hearing.

However, multiple senators expressed frustration with the $20 million cut to education.

Olson noted that Arduin is quoted in a press release saying the supplemental budget was crafted by “working collaboratively with Departments.”

“As of this morning,” Olson said, “the school districts in my area have not been contacted at all.”

“No, my office has not contacted the school districts,” Arduin confirmed.

Rather, OMB asked State departments for any unexpended FY 2019 funds so they can be used for earthquake relief.  DEED offered the $20 million, which has not been dispersed, Arduin said.

OMB Budget Director Lacey Sanders explained that it is standard practice for DEED to hold additional funding until late January or early February until an accurate head count is made.  That head count contributes to how funds are divided among districts.

Both Arduin and Sanders argued that the K-12 education formula was fully funded in last year’s operating budget and that the additional funding in HB 287 was simply one-time money outside the formula. 

“With all due respect, in my opinion, I think you’re talking to the wrong people first.  You should be talking to the school districts first to see where that money is going to be obligated,” Sen. Click Bishop (R-Fairbanks) told Arduin.  “Talk to them first and then talk to your agencies.  Those schools, I’m sure if you would talk to them, they would have the money prioritized.”

Kenai Peninsula Borough School District (KPBSD) Assistant Superintendent Dave Jones confirmed Bishop’s suspicions in a letter to Senate Finance members Peter Micciche (R-Soldotna) and Gary Stevens (R-Kodiak).

Jones wrote that KPBSD budgeted for and spent $1.4 million of the $20 million scheduled for cuts in SB 39.  That money restored funding for 11.5 teaching positions and three days of work for support personnel previously cut from their own budget.

“We have been employing and paying those folks since the start of the school year in August!” Jones exclaimed.  “KPBSD is currently running a deficit General Fund budget that requires us to spend approximately $675,000 in fund balance.  We cannot afford to be forced to spend an additional $1.4 million dollars in fund balance.”

Micciche wondered if the cut caught school districts by surprise.

“It is my contention that school districts and other entities seeking money or expecting money from the State should not be anticipating spending money that has not been allocated to them,” responded Arduin.

Stevens was chairing the Senate Education Committee Tuesday and couldn’t attend the Senate Finance hearing, but he opened his own hearing with a message.

“Before we start, I just want to thank all of you in the audience and who are listening who are in education and in K-12 and dedicated to helping your students,” Stevens said.  “I know you’re going through a lot of turmoil right now with this $20 million cut you may be facing, but I appreciate through all of that that you are dedicated to helping your students and seeing that they get a proper education.”

Sen. Bill Wielechowski (D-Anchorage) drew a comparison to the $100 million the State paid in FY 2019 for oil and gas tax credits, asking Arduin if she considered cutting those before cutting education.

Arduin replied that the tax credits have already been paid.

Hoffman noted that the education money in HB 287 is “the law of the land.”  He compared the promised funding to Dunleavy’s commitment to paying out full Permanent Fund dividends because that is also the law.

“Appropriations are the law of the land until we request to change them,” countered Arduin.  “If you pass this bill, you will have changed the law.”

She told the committee that Dunleavy will wait to see what actions legislators take on the bills and ultimately could keep the $20 million for education.

However, Article II, Section 15 of the Alaska Constitution gives Dunleavy line-item veto authority.  The legislature could restore the funding, pass the bill, and still watch Dunleavy veto the $20 million.

Sen. Hoffman: Cut to VPSOs “Creating Two Different Classes of People in Alaska”

Arduin and Sanders did not know which districts might be affected by the $2 million reduction in school bond debt reimbursement or whether cutting $1.2 million from broadband access grants might cost federal matching funds.

They similarly didn’t know why funding for fire suppression chemical mitigation, a $9.4 million line item, needs to be in the supplemental budget or how many airports that used the chemicals might need to be cleaned.

In his transmittal letter, Dunleavy writes that SB 39 returns $5.8 million to the general fund.  $5 million of that total comes via a reappropriation from the Alaska Liquified Natural Gas Project Fund.  The remaining $800,000 comes from Department of Military and Veterans’ Affairs capital projects.

Sanders told Hoffman that if SB 39 did not reappropriate the $5 million from the gasline, the money would simply remain in the fund.

This means the $10.6 million in cuts advertised by OMB is technically accurate, but could be considered inflated by the $5 million.  The OMB representatives testified that the Alaska Gasline Development Corporation (AGDC) does not intend to spend that money this year.

“If money that’s not being used is pulled from various different agencies, there could be potential ramifications of behavior by particular agencies to spend the money to the degree that it’s allowable,” worried Sen. Natasha von Imhof (R-Anchorage).

Arduin reiterated that departments are offering this money because they will not be using it.

In addition to education, SB 39 cuts $3 million from the Village Public Safety Officer (VPSO) program, applying those funds to a $3.5 million increase for Alaska State Troopers.  Unlike the gasline funds, VPSO funds would lapse at the end of the fiscal year if unspent.

Arduin told committee members that all FY 2019 unspent funds scheduled to lapse were reappropriated in SB 39, per the various departments.

“So your testimony is that this is the only item in the entire budget that is going to lapse?” Wielechowski asked, referring to the VPSOs.

Arduin equivocated, saying that that is the best information OMB currently has, but they may update it later in the year.

Sanders said shifting VPSO funding to the Troopers was in response to conversations last session about the Troopers’ difficulty in recruitment and retention.

“Supplemental budgets are meant to take care of unforeseen expenses (earthquake repairs) not take away funds mid fiscal year.  Taking money from schools and VPSO mid spending year is poor policy,” freshman Rep. Sara Hannan (D-Juneau) tweeted.

Also responding to the VPSO cut, Sen. Scott Kawasaki (D-Fairbanks) asked in a tweet, “Why is a life of a rural Alaskan not worth as much as any other?” 

Hoffman expounded on that thought Tuesday, saying VPSOs have the same difficulty recruiting and retaining people because salaries are too low.  Like the Troopers, their concerns should be addressed by looking at the source of the problem.

“It’s not that I don’t believe that people that are providing the services in a far flung village that may be at least one day away, or maybe three to four days away because of weather, are being disenfranchised from services because those positions aren’t filled; the problem is that the recruitment of these positions needs to be upscaled,” Hoffman argued.

Cutting the VPSO program is “creating two different classes of people in Alaska that need the protection that is due them,” Hoffman told Arduin and Sanders.

“If you were living in that community for a year, and we had someone going out and shooting up the place and you did not have an officer to go to talk to, I think you would feel as unsafe as they do,” he continued.

“Taking the money at this time is short-sighted and does not do justice to the services that are required for the people in the far flung corners of Alaska,” Hoffman concluded.  “I know for a fact that I will not support reducing the program.  I will support working with the people of Alaska so that all people of Alaska feel safe.”

Olson referenced the killing of ten-year-old Ashley Johnson-Barr in Kotzebue last year, trying to reconcile Dunleavy’s claims that public safety is his top priority while he also cuts VPSOs.

Ashley’s father, Sootty Barr, was an invited guest during Dunleavy’s State of the State address.  Dunleavy later appointed him to the Executive Clemency Advisory Committee.

Bishop said that returning to a defined benefit retirement plan, like a pension, would make Trooper and VPSO recruitment and retention problems go away.

“If we need it, we should fund it,” Sen. Mike Shower (R-Wasilla) declared.  But Shower asked OMB to provide data showing a pension would make the difference before taking that kind of action.

Senate Finance held SB 38 and SB 39.  Senate Finance Co-chair Bert Stedman (R-Sitka) said the committee is unlikely to move the bills in the next couple weeks.

Near the end of the hearing, von Imhof wondered how legislators will agree to $1.6 billion in expected cuts when $25 million produced such a “spirited discussion.”

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