The Senate Finance Committee introduced a new version of the capital budget Friday, May 3, that doesn’t include divestiture of Alaska Marine Highway System (AMHS) property or full funding for construction of a new visitor center in Denali State Park.

Gov. Mike Dunleavy’s capital budget was an austere $96 million in unrestricted general funds (UGF), just enough to maximize federal matching funds.

But the items that drew the most scrutiny in that budget didn’t use UGF.

Dunleavy proposed spending $37.5 million of AMHS funds to divest ferries and terminals, and, in the process, pay back the federal government for its contribution.

In addition, the budget sought to reappropriate the last $25 million needed to replace the M/V Tustumena, the “Trusty Tusty” that makes runs to Kodiak and down the Aleutian Chain.  The money would instead have been used to match federal terrestrial highway funds.

Both line items are in keeping with Dunleavy’s plan to end ferry service on October 1 in preparation for privatization of AMHS or permanent closure of the Marine Highway.

Meanwhile, the capital budget would have spent $25 million of Alaska Industrial Development and Export Authority (AIDEA) and Alaska Housing Finance Corporation (AHFC) funds on a new South Denali Visitor Center in Denali State Park.  The visitor center would be built at Mile 135 of the Parks Highway near the K’esugi Ken Campground.

The Senate Finance committee substitute introduced Friday largely rejects those ideas.

It replaces the $25 million reappropriation from the Tusty with UGF, leaving the Tusty replacement whole.

Total State spending on highways is brought to $60 million UGF.  Shareen Crosby, aide to Senate Finance Co-chair Natasha von Imhof (R-Anchorage), said that leverages $690 million in federal funds.

Rather than divesting ferries and terminals, the Senate Finance CS includes $13.5 million for vessel overhaul and terminal rehabilitation.  Another $3 million to retrofit the Tazlina and Hubbard with side doors will increase their flexibility in loading vehicles.

Section 14 of the CS specifies that any revenue from AMHS assets sold in the next three years will be deposited in the AMHS vessel replacement fund, indicating a commitment to continued operations of AMHS.

The CS also includes $250,000 for the private Inter-Island Ferry Authority that operates subsidized routes with limited ridership for AMHS.  Dunleavy had proposed to eliminate the subsidy.

Lastly, the CS has $420,000 for expansion of the Lemon Creek Correctional Center laundry facility that Crosby specifically mentioned provides services for AMHS. 

The South Denali Visitor Center would only get $2.5 million, ten percent of Dunleavy’s request.

“We have spoken with folks in the governor’s office and explained that we felt, with the fiscal situation, this was ample for Fiscal Year ’20 for design purposes,” Crosby told committee members during Friday’s hearing.

“Is it contemplated that the State will assume ownership or receive financial benefit from this $2.5 million investment?” asked Sen. Bill Wielechowski (D-Anchorage).

von Imhof, who chairs the capital budget, said the ten-percent funding is just to get the project started.  The level of State involvement will be determined later.

CS Includes Dunleavy Requests for Deferred Maintenance, PFAS, Gasline Permit

The University of Alaska has a $1.2 billion backlog of deferred maintenance, Crosby told the committee.  Therefore, the CS increases Dunleavy’s request to address it from $5 million to $10 million.

Statewide, there is $9 billion in deferred maintenance across all departments.

The Senate Finance CS is $166 million UGF, $70 million more than Dunleavy’s capital budget.  However, $21 million of that is for deferred maintenance that Dunleavy listed as FY 2019 supplemental spending, artificially deflating his FY 2020 spending total.

The CS did match Dunleavy’s supplemental request for $9.4 million on per- and polyfluoroalkyl substances (PFAS).  PFAS is a class of chemicals found in Teflon, other non-stick materials, and firefighting foam that persists in the environment and causes cancer.

Dermot Cole reported extensively on how the Department of Fish & Game (DFG) closed lakes in North Pole and Eielson Air Force Base due to PFAS levels, until the Dunleavy administration redefined PFAS pollution and declared the lakes safe.

“It’s nice to see the administration recognizing that and putting the funds in there,” Sen. Click Bishop (R-Fairbanks) said of the PFAS funds.

A late request from Dunleavy increases receipt authority for the Alaska Gasoline Development Corporation (AGDC) by $25 million.  von Imhof explained that oil companies are interested in completion of the Federal Environmental Regulatory Commission (FERC) permit for a gasline and may want to contribute those funds.

Senate Finance Co-chair Bert Stedman (R-Sitka) said that most projects that obtain a FERC permit aren’t completed, but the permit will allow financial review of the gasline to continue.

“There’s value in having the permit,” he declared.  “If we didn’t finish the FERC process, we will have expensed hundreds of millions for nothing but a bunch of paper to go to a shredder.” 

Potential Loss of Funding for Districts Makes Senate Finance Members Edgy

Section 12 of the CS clarifies that the sale of land in Sitka owned by the Department of Education and Early Development (DEED) will benefit Mt. Edgecumbe boarding school.

In response to the looks of committee members, Stedman explained that there is interest in building a floatplane dock on old military land.

“Those lands are held by the Department of Education for the school,” he said.  “In the event that those properties are sold, the benefit comes back to the school.”

The concern over Section 12 served as a prologue to debate over another section, Section 20, reappropriating funds from 40 projects across the state.  $5.4 million that would otherwise lapse will be held in the Alaska Housing Capital Corporation (AHCC) account.

von Imhof explained that there are small amounts from dozens of projects that are either complete or overfunded, but there isn’t enough time left in the session to reappropriate those amounts to projects within the relevant districts.

Friday was Day 109 of the session.  The legislature must adjourn on Day 121 or vote to extend the session by a maximum of ten days, according to the constitution.

At the end of the fiscal year, there can be a more accurate accounting of what funds remain from the projects so the Senate Finance Committee can decide how to allocate them next year, von Imhof said.

“By putting it into this area, we will then know and plan for the following year how to reappropriate them equivalently across districts or across projects or what have you, and we will know what the final balance is because we have let the dust settle at the end of June,” she told the committee.

Historically, before the State’s current budget issues, capital spending was a point of intense backroom debate as legislators fought to get the maximum amount for their individual districts.

Section 20 hinted at those old fights, sparking questions about certain of the 40 projects and the future disposition of those funds.

Crosby’s assertion that all the reappropriations have the support of the affected departments didn’t stop the questions.

von Imhof was annoyed.

“These were not chosen willy nilly,” she said, continuing,

Our options include reappropriating them into general funds in general, reappropriating them into matching funds with the federal government for highways that serve all of Alaska- highways and airports- or reappropriating them so the next year, we can give districts, which we have not done in a very long time, a small amount of money for playgrounds or parks or lighting or safety or something along that line.  By putting them into a big slush fund at this point, we can either, next year, make sure that everyone gets the same and fair amount, or you can go back line by line by line and specifically say, “I want my $427,000.56 to go right back to my district, and not a penny more and not a penny less.”  You have a right to do that.  We will have those robust and very spirited discussions next fall.  But, for now, we’re parking them because that’s what we’ve got time to do.

Stedman said putting the money in AHCC, which he jokingly called the “Parking Garage Fund,” was part of the budget discussion with the House.  The goal is to close out as many old capital projects as possible and move forward.

“It just seemed to be the fairest way to do it,” he said quietly.

von Imhof added that the money may become important in the debate over how much to fund school bond reimbursement.  The Senate fully funds it, while the House funds it at 50 percent.

von Imhof then apologetically compared Stedman’s style with her own, saying it is a classic example of “good cop, bad cop.”

“I’ve been accused of a lot of things since my political career began.  This is the first time the Finance Committee chair ever accused me of being a good cop,” Stedman laughed.

Sen. Peter Micciche (R-Soldotna) said that holding the reappropriations in a fund until next year will prevent the frenzy of last-minute, untargeted spending that has happened with lapsing funds in prior years.

“I think it’s the right thing to do,” he told von Imhof.  “I appreciate that you’ve given us some time to consider and prioritize future projects, as opposed to just trying to spend the money because it’s there now.” 

Capital budget amendments are due Monday at noon.

After it passes the Senate, the House Finance Committee will get a chance to weigh in on the capital budget and make it a part of end-of-session negotiations.

The House voted Friday against concurrence with the Senate operating budget.

If the Senate fails to recede from its version Monday, the two chambers will appoint a conference committee to reconcile the two versions.

Anticipating failure to recede, the House appointed House Finance Co-chairs Neal Foster (D-Nome) and Tammie Wilson (R-North Pole) to the conference committee, along with minority member Rep. Cathy Tilton (R-Wasilla).

Senate members will likely be Stedman, von Imhof, and Sen. Donny Olson (D-Golovin).

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