House members told officials from Gov. Mike Dunleavy’s administration they are “in disbelief” at his FY 2019 supplemental budget, which cuts education operations by $20 million.

The House has yet to organize.  A canceled floor session Thursday, February 7, extended the record for most days without a permanent speaker of the House.

It was Day 24 of this legislative session.  The House has now spent over one-quarter of the 90-day session without a majority caucus.

In lieu of committee hearings, House members have been holding informational meetings on a variety of topics.  The canceled floor session allowed for an examination of the supplemental budget, SB 39.

Senate Finance Committee members were not happy last week when Office of Management and Budget (OMB) Director Donna Arduin advised them of the $20 million mid-year cut to school operations.

That $20 million was passed last year in HB 287 as part of a budget compromise.  Gov. Bill Walker signed the bill.

When Rep. Grier Hopkins (D-Fairbanks) asked staid Legislative Finance Director David Teal if the education cut is normal, Teal responded Thursday, “I would say nothing’s very normal right now.  It’s really unusual to repeal an appropriation unless that appropriation is clearly not going to be used.”

House members echoed the Senate’s discomfort with the cuts in their informational meeting.

“So you’re telling me that even though dollars have been appropriated by the legislature, signed onto by the governor, that the next administration can come in unilaterally, essentially, and undo what the legislature has done?” Rep. Louise Stutes (R-Kodiak) asked Arduin.

“We’re proposing legislation to you.  The legislature has the ability to appropriate, negative appropriate, unappropriate.  That’s the responsibility that you have.  Our bill in front of you is a proposal,” Arduin responded.

“I think that you’ll find we’re not looking very favorably on a proposal to change a policy that we made when, in fact, the purpose of a supplemental traditionally is to true up the budget to actuals in any given fiscal year, rather than to change policy,” Rep. Ivy Spohnholz (D-Anchorage) told Arduin.

Arduin justified the cut by saying the $20 million was “one-time” funding that had not yet been dispersed to school districts.

“Can you also remember any time that we have, as a legislature… ever taken back monies that were allocated, encumbered, and then we swept them at the last minute?” Rep. Tammie Wilson (R-North Pole) asked her.

Wilson was one of the co-chairs of House Finance announced by the Republican caucus before Rep. Gary Knopp (R-Kenai) declined to be the twenty-first member, denying them a majority.

Arduin told Wilson that because the money had not been allocated to school districts and was still technically in the State treasury, waiting to be dispersed, it could not have been spent.

“I guess I disagree with that,” Wilson responded.

“The school districts did make contracts.  They did make obligations, just as if it was a capital project, within the school year of FY ’19,” she continued.  “To say that it wasn’t encumbered I think is not a true statement because we already have class sizes that have been determined, we’ve already hired staff, buses have been put together.  All of that was done based on the $20 million coming this year.” 

“Technically, State monies can’t be encumbered until they’re allocated,” Arduin insisted.

“We do it all the time,” countered Wilson.

Speaker Pro Tempore Neal Foster (D-Nome) said the debate was over semantics.

“I think the public’s hearing words, like ‘encumbered,’ ‘allocated,’ ‘appropriated,’ ‘claw-back.’  I think it’s a bit confusing for folks,” he said.  “But I think what the public does understand is that we had said that we were going to give them some money, and now we’re saying that we’re not going to, at least in the supplemental here.  I think that sends a bad message.”  

“When this did come out, it did send shock waves through the education community,” Foster said of the supplemental.  “I, for one, certainly can’t support that.”

Stutes said the cut was equivalent to telling school districts to build their budgets and then saying, “Just kidding.”

“I’m in disbelief, frankly,” said Stutes.

House Members Repeatedly Question Arduin’s Understanding in Testy Exchange

“I think the $20 million appropriation is very unusual,” Teal testified Thursday about the education cuts.  “It’s not money there that if you asked the school districts, they would say, ‘We don’t want it.  We don’t need it.  We’ve got too much money, and we’re perfectly happy to offer this money back to you.’”

Arduin told Senate Finance last week that she did not contact school districts to ask if they could absorb the cut.

During a confirmation hearing as the designated successor to Lt. Gov. Kevin Meyer, Department of Education and Early Development (DEED) Commissioner Michael Johnson told Senate Finance Wednesday he also did not contact school districts about the cut, though he supports it.

Senate Minority members have said the education cuts are part of a growing trend of broken promises by the Dunleavy administration.

They also called Arduin “the one with the hatchet.”  She has cut budgets in six other states, but Senate Minority members questioned whether she has been in Alaska long enough to understand its budget system.

Those sentiments manifested Thursday in House members’ questions.

“If we’re not going to give this money to the school districts, was there any look at their savings accounts to see whether or not they would be able to have funds to be able to finish contracts they have already signed?” Wilson asked Arduin.

Arduin responded that the State can’t micromanage school districts, which are separate entities with “ample reserves.”

“Those statements are just so incorrect,” Wilson said.

Wilson mentioned the Pelican City School District in Southeast, which only has $47,000.  Yet it will take a $7,600 cut from SB 39, according to The Midnight Sun.

“Who’s going to actually get hurt are our students.  Because you’re right; we don’t micromanage down into the school districts.  But because they made contracts based on what we said we were going to do, that then becomes our problem,” Wilson said.

Pointing to a section of the bill that pays $15 million for Medicaid claims, Wilson asked if the Department of Health & Social Services (DHSS) has spent all available money, requiring the $15 million to be in the supplemental.

While OMB Budget Director Lacey Sanders acknowledged all DHSS money has not been dispersed, Arduin said that the State directly manages DHSS, unlike the school districts.

“You’re making my case,” Wilson argued, noting $15 million barely funds Medicaid for one month.  “There must be an awful lot of money still sitting that has not gone out the door, probably hasn’t even been obligated yet.  And the only argument I’m hearing right now is that we don’t manage the school districts, so it really sucks to be them, right?”

Arduin told Rep. Andy Josephson (D-Anchorage) that the goal is to make budgets predictable and eliminate deficit spending, a comment that caused confusion for several House members.

The State is required to cover every appropriation with dollars, Josephson said.

“You understand the Alaska statutes require the legislature pass a budget that is balanced?” Rep. Sara Hannan (D-Juneau) asked Arduin.

Every state has a similar requirement, she responded.

Rep. Zack Fields (D-Anchorage) noted that the Anchorage School District hired 25 teachers with its share of the $20 million.  Those salaries are currently being paid.

“To cut this volume of money could require things, such as shuttering school activities for the rest of the year, canceling student transportation,” he said.  “Do you understand what the impact of these cuts would be in districts where the money that the legislature funded has already been substantially invested?”

“I’m not sure that was a question, Representative,” returned an annoyed Arduin.

Rep. Dan Ortiz (I-Ketchikan) took up the charge. 

“You do understand that these monies — the $20 million — were planned for by each of the individual districts in their budgets?  You do understand that?” he asked.

Ortiz said that, with this approach, districts won’t even be able to budget until the end of the fiscal year.

“That just doesn’t work for districts throughout the state.  Do you understand that?” he pressed.

“Representative, I’d appreciate it if you discontinue asking me if I understand things.  It’s a little pejorative,” responded Arduin, her patience gone.

Ortiz later apologized, telling Arduin his comments were not meant to be pejorative.

“No offense was intended, by any means,” Ortiz said.

“One would think they would have asked the school districts,” Teal later told House members, “but I don’t think that’s the issue; the issue is balancing the budget.” 

From DEED’s perspective, Teal explained, they have to get the budget to a number provided by OMB.  And OMB under Dunleavy is focused on cuts.

Teal understood why OMB and DEED didn’t contact school districts.

“Get used to it,” Teal warned.  “When you cut the budget, you’re cutting services.  People will complain.  Why ask them, if they’re going to complain?  You know the answer before you ask: ‘Of course, this hurts.  We’re not expecting it.  We’ve spent the money.  It will draw down our reserves.’”

“I think the issue here is that school districts planned to spend this money.  Many of them have already spent the money.  You can’t unspend money that you spent,” Teal said.  “If you were to take this money back, then, for those districts that spent the money, they would have to say, ‘Well, it’s gone, and I’m going to have to pull from reserves.  I didn’t want to do this, but I have to cover my expenditures.’”

Because the State has a deficit, any money clawed back in the supplemental would be deposited in the Constitutional Budget Reserve (CBR), which requires a three-quarter vote of both legislative chambers to be spent. 

“If you approve this supplemental, you are in large part transferring reserves from school districts to the CBR,” Teal said.

OMB Acknowledges Education Funding is a Lower Priority

In addition to the education cut, the supplemental transfers $13.1 million out of the Alaska Marine Highway System (AMHS) Fund.  $10.1 million will be used for undetermined deferred maintenance projects, while the balance will be used by the Office of Information Technology (OIT).

OMB Budget Director Sanders told House members there will be no impact to ferry service.

Stutes said that the transfer is disappointing, given that Southwest Alaska has been without service for two months while the two ocean-going ferries are being repaired.

“I know when we have ferry service and when we don’t,” she said.

Ortiz asked if AMHS can expect to be spared from the $1.6 billion in cuts expected in Dunleavy’s FY 2020 budget, due on February 13.

As she has in the past, Arduin refused to answer directly, replying, “The governor will be presenting his Fiscal Year ’20 budget proposal next week.”

Wilson noted that there is a $20 million cut to education in the supplemental at the same time $13.1 million is being made available from AMHS.  Does that mean maintenance and IT are more important, she asked.

“We prioritized the needs as are put before you,” Sanders responded.

“So the priority, as you just stated, would be deferred maintenance and OIT over our students and schools.  Okay,” Wilson sighed.

Neither Sanders nor Arduin contradicted her.

“If we’re going to be cutting $1.6 billion out of the budget for this next year, and we couldn’t find this $20 million without taking it out of the schools, that’s very disappointing,” Wilson told them.

House Members Look for Way to Liberate $20 Million

The release of the $20 million became a key issue at the meeting.

Sanders testified that the money was held until DEED could determine an accurate student head count and therefore appropriately distribute the $20 million based on the education formula.

Amy Lujan, executive director of the Alaska Association of School Business Officials (ALASBO), was in the audience and corroborated that this is typical of one-time money.

However, those monies would usually be dispersed about this time of year.

Instead, Sanders said the administration will hold the funds until it determines what the legislature will do with SB 39.  It is not required to disperse them until June 30, the last day of the fiscal year.

“In theory, they should have been sending this out month by month through the year,” Teal said, adding that holding the money is an accounting decision.

Dunleavy can’t deny the funds, according to the Alaska Supreme Court’s decision in State v Fairbanks North Star Borough.  That prohibits Dunleavy from restricting obligated funds that have survived the veto option.

$30 million in HB 287 for FY 2020 education grants are also protected.

“If you don’t vote to back this money out of the budget, it stays in,” Teal said.  “The same is true of all of the FY ’20 funding for education.  It was approved last year with the delayed effective date, meaning it cannot be vetoed.  It cannot be reduced by the governor unilaterally.  The only thing he can do is ask for you to reduce the FY ’19 money.  He can ask for a reduction in education funding for ’20.  Neither can occur without legislative action.”

However, Dunleavy can hold the funds until the last day of the fiscal year, though it may then be difficult for school districts to spend.

“At this point, they’re not violating anything,” Teal said of the administration.

“This money isn’t being withheld,” he explained.  “It’s more being delayed.”

Typically, the supplemental budget debate gets rolled into debate over the upcoming year’s budget.  But that looks to be a long battle that could last until the June 30 deadline.

Legislators asked Teal how they can get the administration to release the funds.

Just as Dunleavy can’t force legislators to cut education funding for FY 2019, their options are few with respect to timely release of the funds.

They could write a letter, signed by nearly all legislators, asking Dunleavy to release the $20 million, Teal said.  Or they could draft a fast track supplemental that gets to the floor earlier than usual, removing the education cut in a near-unanimous move.

“It seems fairly obvious to me that, in this room, it doesn’t have legislative support,” Teal said of the $20 million cut.

But while those actions would send a message to the administration, it’s “still just a message,” he concluded.

Ultimately, “The money will go out as planned unless you reduce it,” Teal assured members.

As for cuts in the budget as a whole, Teal relied on a truism.

“Services will be reduced if the budget is reduced,” he said.  “If you need it, you fund it.”

This article brought to you by Crosby, Stills, and Nash’s “Teach Your Children.”

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