The Senate passed a budget Wednesday, May 1, that pays a $3,000 Permanent Fund dividend (PFD), while cutting agency operations by $171 million in unrestricted general funds (UGF).

The budget now heads back to the House for concurrence.  If they fail to concur with the Senate changes, as expected, the differences between the House and Senate versions will be reconciled in conference committee.

The biggest issues will be with the Permanent Fund.

While the House decided to hold debate over the PFD separate from the operating budget bill, Senate Finance voted to include a full statutory PFD, counterbalancing that with a $12 billion transfer from the Permanent Fund Earnings Reserve Account (ERA) to the Fund’s corpus, inaccessible to legislators.

Never in the State’s history have we deposited that much in the corpus, Senate Finance Co-chair Bert Stedman (R-Sitka) said.

However, locking more money away means that a $3,000 PFD will be less likely in future years because there will be less savings to cover it.

If it survives the conference committee, the $3,000 PFD in the FY 2020 budget would require $1.2 billion to be drawn from savings, probably the Constitutional Budget Reserve (CBR).

Sen. Bill Wielechowski (D-Anchorage) tried to instead balance the budget with an amendment to not allow deductible per-barrel oil tax credits, preserving an estimated $1.2 billion in FY 2020 revenue.  Wielechowski has a separate bill (SB 14) to permanently repeal the credits.

“There is significant money that we are leaving on the table,” he said.

“It’s pretty creative,” Stedman said of the amendment.

Stedman said he’s “no fan of the per-barrel credit,” but the amendment would significantly change the economics of oil projects.

Sen. Peter Micciche (R-Soldotna) said he could imagine how other industries, like fishing, would feel if their revenue were directly tied to the legislature’s inability to cut a budget.

Sen. Jesse Kiehl (D-Juneau) responded that cuts aren’t the only lever to reduce the deficit.

“We have a constitutional obligation to pass a balanced budget, and this is the first amendment I’ve seen today that would get us there,” Kiehl said, adding his support was reluctant.

Wielechowski’s amendment failed along caucus lines.

Sen. Chris Birch (R-Anchorage) later offered to balance the budget by cutting the PFD down to $1,200.  Continued $3,000 PFDs, he said, would ultimately result in taxes to cover deficits.

The amount of the PFD has also been debated in committee.

Senate Finance moved SB 103 out of committee Tuesday.  The bill would evenly divide the percent-of-market-value (POMV) draw from the ERA between government and PFDs, generating a PFD of about $2,300 in the near term.

SB 103 will be debated on the floor Thursday.

Wielechowski said until the PFD statute is formally changed, the legislature should follow the existing formula.  Further, a $1,200 PFD would be about 25 percent of the POMV, an amount Wielechowski said is unfair to the people.

Birch’s amendment failed 3-17.  Kiehl and Senate Finance Co-chair Natasha von Imhof (R-Anchorage) joined him in support.

von Imhof pointed to the $1.2 billion deficit from a full PFD.

“As a true fiscal conservative, I cannot support that,” she said.

von Imhof said she “temporarily” supports the budget, despite the PFD, but hopes to eliminate the deficit in conference committee.

Kiehl cited the PFD and the deficit as the primary reasons for his “no” vote.  He was the only senator to vote against the budget.

Stedman assured members that the State has options for filling the deficit from savings other than the ERA.  That will be decided in conference committee.

Senate Votes Keep Deeper Cuts to Medicaid and Ferries

The $1.9 billion cost of a full PFD drives the $6.3 billion price tag of the Senate budget.

It actually reduces agency operations by $171 million.  $83 million of that comes from Medicaid, while $40 million comes from the Alaska Marine Highway System (AMHS) and another $5 million from the University of Alaska (UA).

von Imhof credited Gov. Mike Dunleavy’s proposed cuts with being the catalyst for Senate reductions.

However, that level of cut to AMHS would drastically reduce service systemwide and eliminate winter service to Prince Rupert, British Columbia, according to Department of Transportation (DOT) budget scenarios.

“We chose to work with the department to come up with an alternative, pared-down Marine Highway schedule for the winter, rather than closing the Marine Highway down on October 1,” Stedman explained Tuesday on the Senate floor during adoption of the Senate Finance CS.

“Having no service is not an option.  We cannot have a shutdown,” Stedman declared Wednesday.  “Yes, the service is reduced.  No, the service is not eliminated.” 

Kiehl said the proposed cut to AMHS would do “terrible economic damage in coastal Alaska.”

Kiehl tried to add back $19.5 million to AMHS via an amendment.  He said that would allow four trips to Dutch Harbor versus two in the Senate Finance CS.  Those trips would still not meet the demand.

“You can’t just restart the system when you put it in mothballs,” Kiehl said.

Debate over the amendment lasted 40 minutes alone.

Sen. Scott Kawasaki (R-Fairbanks) said he couldn’t imagine what it would be like if the Parks Highway suddenly ceased to exist.  He added he wants to see coastal communities thrive, not go into survival mode.

Sen. Gary Stevens (R-Kodiak) said the cut to AMHS will also impact the Railbelt.

Stevens noted residents of Cordova will have to ferry to Valdez and drive, rather than ferry to Whittier and pass through the tunnel to Anchorage.  Anchorage businesses won’t be able to sell as many groceries, lumber, or other consumables.

Thinking of the upcoming conference committee, Senate Minority Leader Tom Begich (D-Anchorage) told colleagues, “It’s important to bargain with our highest hand, not our lowest hand.”

The AMHS amendment turned out to be the most contentious of the day.  It failed 8-12, with Stevens and Sen. Lyman Hoffman (D-Bethel) joining the minority in support.

Sen. Elvi Gray-Jackson (D-Anchorage) tried to add back $21 million to Medicaid.  She said the Department of Health & Social Services (DHSS) has an unrealistic goal of savings.

“I’m a big fan of finding efficiencies,” Gray-Jackson said.  “At a glance, the recommendation seemed possible, but when I took a closer look, I feel that the department has made overly optimistic projections about savings with little data to support that they can achieve those savings.” 

She added that the legislature should pass a budget that isn’t likely to require a supplemental budget next year.

von Imhof responded that the only way to cut the Medicaid budget in the short term without harming recipients is through the five-percent reduction in payments to providers represented in the cut.

Begich warned that providers may stop accepting Medicaid patients.

Gray-Jackson’s amendment failed along caucus lines.

Senate budget cuts will have to be reconciled with the House.  Their budget cuts Medicaid by a more modest $58 million, cuts AMHS by $10 million, and cuts UA by a deeper $10 million.

In addition, the Senate fully funds school bond debt reimbursement and rural school construction at a cost of $139 million.  The House only funds half.

Public Safety Amendments Fail Along Caucus Lines

Senate minority members tried to reconcile other differences between the House and Senate budgets through floor amendments Wednesday, but the Senate majority’s binding caucus rule was in effect.  The rule requires members to vote as a bloc on budget and procedural matters.

Only one substantive minority amendment passed.  That added $800,000 to the Senior Benefits Payment Program, recognizing it was underfunded last year.

DHSS sent out notice that because the program was underfunded, recipients would not get checks in May or June.  The Senate Finance CS already had FY 2019 supplemental spending of $800,000 to correct this.

The amendment for FY 2020 passed without objection.

That and the AMHS amendment were the only substantive minority amendments to garner the support of any majority members, even for issues like public safety.

Kiehl offered Amendment 3, similar to one on the House floor, that would have added four prosecutors. 

Kiehl noted that low-level offenses are not being prosecuted because of insufficient staff.  For those crimes that are prosecuted, defense attorneys are incentivized to string out cases as long as possible.

“The people we have are overworked.  The caseloads are high,” Kiehl said of Criminal Division staff.  “If we don’t prosecute the cases that law enforcement makes, we don’t have consequences.”

“This is the rubber.  It’s time to put it on the road,” he said of his amendment.

Senate majority members, like Senate Majority Leader Mia Costello (R-Anchorage), who have struck a tough-on-crime stance, were placed in an awkward position by the amendment.  They argued that the Senate should pass Dunleavy’s SB 32, which includes five new prosecutors in a fiscal note.

Wielechowski responded that SB 32 will itself increase caseloads, not address the backlog of cases happening currently.

“You will need additional prosecutors for that particular bill,” he said.

When there are insufficient prosecutors, Wielechowski said there is “sort of a triage that goes on” that has resulted in the release of 7,000 low-level offenders and demoralized members of law enforcement and the public.

“That’s where we’re seeing the outrage,” he said.

Amendment 3 failed along caucus lines, as did an amendment from Sen. Donny Olson (D-Golovin) keeping Village Public Safety Officer (VPSO) funding at FY 2019 levels. 

The Senate Finance CS cuts $1.5 million of the $3 million that has lapsed from the VPSO program in recent years because of unfilled positions.

How is cutting the budget going to help recruitment and retention, Olson asked.

“If public safety is a priority, then we need to put priorities for all Alaskans, regardless of where they live,” Olson said.

“What we have now is two separate justice systems; we have a system for urban Alaska and one that I think is woefully inadequate for rural Alaska,” echoed Wielechowski.  “This amendment helps to balance that out.”

Wielechowski said that the cut “waves the white flag” on the program, rather than having funding available for VPSOs should a solution to recruitment and retention be found mid-year.

“This is not a reduction of $1.5 million; it’s an increase that is unlikely to be spent this year,” Micciche countered, engaging in some serious political spin.  “What we’re saying is, ‘It’s extremely unlikely that you’re going to use this $1.5 million, but we hope you do.  We hope you’re wildly successful in filling those positions.’”

“With all due respect, it is a cut,” Olson replied before his amendment failed.  “In order to take something seriously, you’ve got to have money behind it.” 

Amendment 1 would have increased funding by $475,000 for the Council on Domestic Violence and Sexual Assault (CDVSA) so they could distribute grants for investigation of child pornography.

Kiehl, who offered the amendment, said the rate of crossover between those who create, distribute, or consume child pornography and those who assault children is 40 percent.

“Unfortunately today, no law enforcement agency, local or State in Alaska, has the capacity to proactively investigate internet crimes against children and distribution of child pornography from within Alaska,” said Kiehl.

Micciche argued there is excess funding in the Department of Public Safety to cover the investigations.

“There are not many subjects that make me angrier than child pornography or sexual assault of anyone, but particularly children in our state,” he said.  “If I were remotely uncomfortable that this was not adequately funded, I would support this amendment.”

Micciche also said that there is intent language in the budget dealing with child pornography.

Budget intent language is advisory and not enforceable.

“I appreciate very much the intent language that exists in the budget elsewhere.  This amendment is about the resources to turn that intent into action,” Kiehl said.

Senate majority members were unmoved.

Hope for a Veto-Proof Majority?

Despite the lack of support for most minority amendments, minority members applauded the majority for the budget process.

Begich said it sets an example for the House of how to work together.

If and when the House declines to concur with the Senate budget, each body will appoint three members to the conference committee.  On the Senate side, that will be Stedman, von Imhof, and one member from the minority, probably Olson.  House Finance Co-chairs Neal Foster (D-Nome) and Tammie Wilson (R-North Pole) will likely be joined by House minority member Rep. Cathy Tilton (R-Wasilla).

Appointment of the conference committee triggers the 24-hour rule.  Committees will be able to post notice of a hearing the day before it is held.

The two chambers have two weeks to agree on a budget before the constitution requires them to adjourn or vote to extend the session for up to ten days.

Yet the Senate’s near-unanimous vote Wednesday and repeated comments from Senate members about how collegial the budget process has been suggest that, if House members can agree to the Senate’s cuts and the conference committee can identify a suitable account to fill the deficit generated by a $3,000 PFD, there may be hope for a veto-proof majority in support of the budget.

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