In a surprise move Friday, April 26, the Senate Finance Committee voted to pay a full Permanent Fund dividend (PFD) and make $12 billion in State savings unavailable for spending.
Friday was set aside for budget amendments.
“It will be incredibly exciting and better than Netflix,” Senate Finance Co-chair Natasha von Imhof (R-Anchorage) promised Thursday afternoon.
Indeed, the break-neck hearing was more reminiscent of a congressional bill mark-up. Of the 21 amendments that received a vote during the 80-minute hearing, 18 were adopted without objection. Only one failed.
The first big amendment, paying a statutory PFD of about $3,000, came from Senate Finance Co-chair Bert Stedman (R-Sitka).
Like Dunleavy’s budget, the House intends to deal with the PFD separately from the operating budget bill.
The Senate Finance co-chairs made it clear that they plan to resolve major differences with the House budget in conference committee, after the Senate passes its own version of the budget.
A $3,000 PFD would require over $1 billion to be spent from savings.
Senate Finance moved out a committee substitute Friday afternoon that includes all adopted amendments. It does not identify which account to use to fill the deficit resulting from a full PFD.
“The conference committee will have to decide, if there is going to be a deficit, how to balance the budget,” said Pete Ecklund, Stedman’s aide.
“As I’ve stated all along, paying out a $3,000 dividend will put financial pressure on the State,” von Imhof said Friday. “I feel that the State should live within its means and pay a dividend that we can afford, as well as provide a reasonable level of State services. However, understanding the process, by putting this amendment now, it becomes a conferenceable item, and the co-chairs can continue to negotiate with the House and discuss the amount of the dividend over the next three weeks. So I reluctantly support this.”
The PFD amendment passed without objection. Senators Lyman Hoffman (D-Bethel), Peter Micciche (R-Soldotna), David Wilson (R-Wasilla), Donny Olson (D-Golovin), and Bill Wielechowski (D-Anchorage) signed on as co-sponsors to demonstrate their support.
With the $3,000 PFD, which costs $1.9 billion, the Senate Finance CS contains $6.3 billion in unrestricted general fund (UGF) spending. It has $2 million less in UGF spending on agency operations than the House.
Committee Votes to Protect $12 Billion of Permanent Fund Earnings
Shortly after passing that amendment, which requires spending from savings, another Stedman amendment sought to protect savings. It would have moved $14 billion from the $19 billion Permanent Fund Earnings Reserve Account (ERA) to the corpus of the Fund that is inaccessible to legislators.
“This amendment would take $14 billion — that’s $14 billion — from the Earnings Reserve, which is the unprotected portion of the Permanent Fund, and put it into the constitutionally-protected portion of the Permanent Fund, therefore making withdrawals of these funds only allowed with a vote of the people,” explained Stedman.
von Imhof said the move would likely mean a $1,200 PFD in 2020, since savings would be depleted or unavailable to increase the PFD, like in the previous amendment for 2019. The PFD could only be paid from the percent-of-market-value (POMV) draw from the ERA.
“It’s almost its own type of spending cap and avoids ad hoc draws on the Earnings Reserve, which is available now,” von Imhof said of the amendment. “By moving this money, we protect it for future generations, and we force the conversation of redefining how the dividend is calculated to something that I support, which is more of a split on the POMV draw.”
After the POMV draw of $3 billion, about $1 billion would remain in the ERA.
“A billion’s a lot of money,” Stedman insisted.
Plus, Stedman said, the money deposited in the corpus will spin off investment earnings that will be returned to the ERA.
“We’re going to have ample resources to take care of what we need to take care of,” he assured.
“Boy, it’s a big game of chicken, Mr. Chairman,” Wielechowski told Stedman. “If there’s a market downturn or if the price of oil drops, you will have absolutely no ability to pay a dividend next year.”
Wielechowski noted that the last time the ERA was so low, following the Great Recession, the Permanent Fund had to sell assets at a loss to afford to pay a PFD.
“We’re putting a large amount of money out of reach for those of us that are dealing with day-to-day State-needed services,” Olson warned.
“We are still extremely dependent on a single commodity. If the value of that commodity drops substantially and there is no revenue other than the POMV, and everything other than $4 billion has collapsed, we simply do not have the ability to draw the POMV out of the corpus,” agreed Micciche. “It takes one bad year, or two pretty bad years, and you’re out of money and have no ability to respond.”
“We need to take, in my opinion, effective action to protect the Permanent Fund,” replied Stedman. “We need to make sure that it is available, Senator Micciche, for your future grandchildren.”
“This concerns me absent of any analysis,” said Micciche, unmoved. “I just think it takes the ability to respond out of reach.”
“This $14 billion number is too high,” he concluded, offering an amendment to reduce the deposit to $12 billion. “I think that’s adequate room while still protecting the Permanent Fund.”
“That gives us a little bit of a buffer,” Wielechowski said in support. “This is going to force a conversation on putting the PFD in the constitution, and I think that’s where we need to go.”
The $12 billion deposit from the ERA to the Permanent Fund corpus then passed without objection.
“Today’s proposals recommend paying the full, statutory dividend amount this year, locking up $12 billion into a vault and throwing the keys away,” Stedman said later via press release. “The Permanent Fund is not for us to squander. Our generation has been very fortunate over our working lifetime with the oil boom. We need to ensure this fund is available for our grandchildren and great grandchildren.”
Funding for WWAMI Increased, Deeper Cut to University Withdrawn
Higher education avoided cuts Friday, instead seeing a modest increase.
von Imhof offered a $77,000 increase to the Washington, Wyoming, Alaska, Montana, and Idaho (WWAMI) medical education program because FY 2019 funding is insufficient for the coming year. WWAMI allows students from rural states to attend medical school at the University of Washington.
“I found that the program bolsters home-grown Alaska primary care doctors, many of whom… work in rural Alaska. The investment in the WWAMI program is far more cost-effective compared to building and operating a University of Alaska medical school,” said von Imhof.
She added that she is working to move financial support for WWAMI from State dollars to an endowment.
Wilson objected to the amendment, arguing that he would prefer to put more pressure on the program.
The $77,000, paid from the Higher Education Fund, does not impact the deficit.
The amendment passed 7-2. Sen. Mike Shower (R-Wasilla) joined Wilson in opposition.
Without objection, the committee accepted an $825,000 switch within the University of Alaska (UA) to support the Educators Rising program at the University of Alaska Fairbanks (UAF).
Per Hoffman’s amendment, “Educators Rising Alaska… encourages Alaskan high school students to consider and begin preparation early for careers as educators in Alaska’s schools. Students participate in an education career pathway that consists of four courses taken as electives while in high school.”
The University of Alaska Anchorage (UAA) recently lost accreditation for most of its licensure programs for prospective teachers. Upon UA President Jim Johnsen’s recommendation, the Board of Regents voted to permanently eliminate the programs.
“We are having a major crisis in attracting and retaining teachers both in urban and in rural Alaska,” Hoffman told the committee Friday.
He contacted Johnsen, who recommended the boost to Educators Rising.
Micciche offered, and later withdrew, an amendment that would have deepened the University’s budget cut from $5 million to $10 million.
“This takes us down to the House number, which I think is a reasonable number,” he said. “I think there’s room for the University to tighten up and prioritize their spend.”
Micciche withdrew the amendment when he realized matching the House would keep the cut from being debated by the conference committee and therefore prevent it from being larger.
Committee Doesn’t Support Separating Senior & Disabilities Medicaid Services
The only amendment that failed Friday was another from Micciche that would have split Senior & Disabilities Medicaid Services off from the rest of Medicaid.
The Dunleavy administration has sought to consolidate Medicaid so that it doesn’t have to consult the legislature to move money around.
“I believe in protecting the most vulnerable,” said Micciche. “What we’ve seen is that these programs — again, the most vulnerable, seniors and the disabled — those funds have been shifted around. It has eroded from the services that are provided to these individuals.”
von Imhof, who chaired the Department of Health & Social Services (DHSS) subcommittee and supports the consolidation, said Micciche’s amendment would increase administrative processing time by 2,000 hours.
“I’m a little concerned that we’re adding money to this budget when there’s been so much discussion about trying to reduce spending,” she said. “This administrative labor creates more bureaucratic red tape and makes no difference to the day-to-day operations of health care providers or Medicaid beneficiaries. This is all on the back end and creates a huge additional source of costs.”
Wilson pointed out that in the Senate Finance CS, DHSS already has the authority to move $25 million between appropriations, making the amendment moot.
It failed 3-6, with Wielechowski and Olson joining Micciche.
However, the committee did support non-binding intent language from Micciche exempting Senior & Disabilities Medicaid Services from DHSS’s proposed five-percent Medicaid rate reduction. Only Stedman and von Imhof voted “no.”
Senate Finance also approved without objection intent language clarifying that $800,000 in supplemental FY 2019 spending for the Senior Benefits Payment Program be used only for that program.
DHSS suspended the payments for May and June, claiming the program was underfunded, despite the aforementioned ability to move money between DHSS appropriations.
Committee Rejects Moving Inmates Outside
The amendment with the biggest price tag not involving the Permanent Fund came from Shower. It rejected an $18 million cut to Population Management within the Department of Corrections (DOC) and deleted $3.6 million for an out-of-state contract.
Dunleavy sought to move a minimum of 500 inmates Outside, while the DOC Senate subcommittee agreed to only 100. Shower’s amendment brings that number to zero.
“This is essentially denying the ability to move prisoners out of state, from which our discussions and evaluations prove that it does not save the State money,” Micciche explained.
The amendment passed without objection, as did an amendment on behalf of the governor for $8 million toward inmate health care.
Also in public safety, the committee approved Shower’s $250,000 for the Civil Air Patrol, which performs search and rescue flights.
“The Civil Air Patrol saves a substantial amount of money,” said Micciche. “If those were State employees trying to replace the services that they provide, it would be at a much higher cost.”
The amendment passed without objection. Nearly the entire committee signed on as co-sponsors.
von Imhof moved to cut $1 million Dunleavy requested strictly for redistricting. She said most of that work will occur in FY 2021.
“Given the efforts of our committee to contain unnecessary spending, it is prudent to wait to make this very large, multi-year appropriation for an issue that isn’t an urgent need at this time,” von Imhof said.
von Imhof did support $250,000 for the upcoming census that will lay the foundation for redistricting. She noted that the nationwide counting will begin in Toksook Bay and will support over $3 billion in federal money for Alaska.
“Perhaps even more importantly, our representative democracy requires an accurate census to make sure Alaskans are equally represented here in our Capitol,” said von Imhof.
Lastly, the committee adopted an amendment from Shower cutting the State dairy inspector position by $15,000, while increasing receipt authority by an equal amount.
The dairy inspector has been one of the more controversial line items in the budget because the position is needed to keep Havemeister Dairy open. Havemeister is the only commercial dairy currently operating in Alaska.
Shower said he worked with Havemeister and Rep. George Rauscher (R-Sutton) on the amendment to keep the dairy open. It passed without objection.
Senate Finance adopted a committee substitute Friday afternoon, including all the amendments, before moving it from committee to the floor.
On Monday, Senate Finance will take public testimony on SB 103, a bill to evenly divide the POMV between government services and PFDs. It would result in a $2,300 PFD.
The budget will be debated on the Senate floor next week.
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