A budget compromise agreed upon late Monday night has passed the House fully funding the FY17 budget. FY17 operations total $4.4 billion and reflect at $216 million dollar reduction over FY16 spending. Encompassed in the package are reform measures of Medicaid and Alaska’s Criminal Justice Systems. HB247, Oil and Gas Credit Reform, as well as HB245, the Permanent Fund Endowment proposal are expected to be on the floor in the near future and will further reduce the Constitutional Budget Reserve draw necessary to fund the FY17 budget.
Notable changes during the Conference Committee process are:
- Education – restoration of the $50 BSA
- University – adoption of the Senate’s $10 million cut, rather than the House’s $35 million
- AMHS – adoption of the House’s $2 million cut, to be filled this year only by Marine Highway System Funds, rather than the Senate’s $6 million cut
- Health & Social Services – elimination of the Senate’s $2.139 million cut to child care public assistance benefits and $225 thousand cut to Senior Community Based Grants
- Language – $15.7 million in cruise ship passenger tax made available for grants to seven ports of call
- Public Broadcasting – restoration of funding for public broadcasting
Why is the Legislature in Special Session?
The key issue revolves around the ability to achieve a 3/4 vote to access CBR (Constitutional Budget Reserve) funds for the FY17 budget, and passage of a restructured oil & gas credit program. As we approached the end of the regular session, we were close to agreement on the operating budget, on everything from K-12 Education to AMHS funding. However, a compromise oil/gas credit bill failed to achieve House concurrence so the entire interconnected tax credit/budget/fiscal plan derailed. The Senate version substantially changed a carefully crafted oil/gas compromise which had broad majority/minority support in the House. When this happened there was insufficient support to achieve a CBR vote. Today a resolution passed the Legislature allowing all legislation on the call to pick up where it left off at the end of the session. Fortunately, this prevents having to return to the beginning of the committee process.
Many predicted that this session would be one of the most challenging since statehood.
Governor Walker’s call includes the following bills:
HB 256/HB 257- Operating and Mental Health Budgets: These two bills are in conference committee and most items are close to final agreement. With passage of today’s resolution, discussions will resume on final closeout items. The $12. 9 million reduction in education funding caught many of us by surprise. We will be working to restore this cut as we go forward.
SB 138-Captal Budget: This budget passed the Senate and is awaiting a House vote.
HB 245/SB 128- Permanent Fund Deposits, Dividends, and Earnings: The Governor proposes to restructure permanent fund earnings in order to make a sustainable annual draw to pay dividends and to fund government operations.
HB 247-Tax; Credits; Interest; Refunds; Oil & Gas: The House version that I supported has a greater positive benefit to the state’s revenue picture. A conference committee will work out Senate and House differences.
Insurance for Dependents of Deceased Fire/Police Officers: This legislation will provide the spouses and children of state employees killed in the line of duty with health insurance through PERS/TERS.
HB 200-Adoption of Child in State Custody: This bill was introduced by Governor Walker to allow for a more direct way for courts to recognize tribal placement preferences as dictated by the Indian Child Welfare Act for when Indian or Native Alaskan children are up for adoption. It will unify adoption hearings and Child In Need of Aid (CINA) hearings to try to help advance placement and adoption for all Alaskan children. Although his bill passed the House unanimously the Senate version made it to the Senate floor but was returned back to Senate Rules.
HB 27-HDSS Duties, CINA, Foster Care Adoption: This bill made changes to the Office of Children’s Services statutes to solidify in law what are considered best practices policy. For example: Allowing a student that has changed homes to complete a semester in their same school whenever possible and clarifying rules for persons under 21 who are still in state custody. During regular session this bill passed the House and was in Senate Rules at the end of regular session.
HB 374-Reinsurance Program; Health Insurance Waivers: This bill passed the House Labor & Commerce Committee and was in the House Rules Committee at the end of regular session. This bill was introduced by Governor Walker to respond to the high rate increases in individual health insurance. Those increases in cost were driven by a small individual health insurance pool unable to spread out the cost of high risk Alaskans. This proposal would utilize revenue from existing insurance premium tax to fund a reinsurance program to help spread those increase cost among more insurance policies.
HB 246/SB 129-AIDEA: Funds, Loans, Programs, Dividends: Introduced by the Governor in companion to the oil & tax credit bill. This will create another fund under the Alaska Industrial Development and Export Authority. It will create loans or finance oil and gas infrastructure development not to exceed 50% of the capital cost or a loan of up to $25,000,000. Its intent is to help transition away from oil and gas credits by creating another financing opportunity for these type developments. The amount appropriated would be up to the Legislature.
HB 4001- Omnibus Taxes & Credits: Mining Licenses: This is new legislation that combines an income tax, marijuana tax, motor fuel tax increases, mining tax, fishing tax, tax on electronic cigarettes, and an excise tax on alcoholic beverages, all into one piece of legislation. All of these tax increases have been before the House Finance Committee in various separate or combined forms during regular session. This bill has been referred to the House Finance Committee and was heard today for the first time in Special Session.
Four major themes define what must get done in the legislature this year. They are fiscal, Medicaid, criminal justice, and oil and gas tax credit reform. These require us to address Alaska’s greatest cost drivers and to rethink outdated ways of doing business.
The House Finance Committee is working with the governor to create a Permanent Fund Endowment under House Bill 245 with an average annual draw from the Permanent Fund of 4.8 percent of the current value. This will pay for dividends and state services such as education, roads, ferries, and public safety.
Permanent Fund Dividends would be funded with 20 percent of the annual percent-of-market value (POMV) draw and 20 percent of our royalty share of oil. Dividends would be $1,000 in each of the next three years, starting this October and thereafter calculated under the new formula.
Medicaid and the Department of Corrections are two of the largest components of the state budget. Costs in these two areas alone equal roughly one-fifth of our state’s annual spending.
In the past 10 years, our prison population has grown by 27 percent, with a significant increase in pre-trial holds and longer sentences for non-violent crime. In 2015, the Alaska Legislature, in cooperation with Alaska Supreme Court Justice Dana Fabe and Governor Bill Walker, requested technical assistance from the Pew Charitable Trust to review best practices across the country and recommend statutory revisions to address our prison crisis. Under Senate Bill 91, risk assessments in parole determination, modifications in bail and sentencing practices, and shorter prison stays for technical parole violations are some of the results from that work.
Oil and gas tax credit reform in House Bill 247 is also a necessary component of a fiscal plan. In the Cook Inlet region, tax credits have been successful in restoring a reliable gas supply to the Anchorage area, but the state’s current fiscal climate has compelled us to consider phasing out those incentives.
Each of these four issues – fiscal, Medicaid, criminal justice, and oil and gas tax credit reform – is a complex undertaking, but together they will put Alaska on a more sound fiscal footing. With Medicaid legislation having passed, Senate Bill 91 on its way to a House Floor vote, and discussions continuing on a Permanent Fund Endowment and oil and gas tax credits, we are making progress.
First National Bank Alaska has graciously provided office space for legislators at the Bill Ray Center for lawmakers who are displaced by major renovations at the Capitol.
At such a critical juncture, additional time is needed to build cooperation and consensus for moving forward. To do otherwise is not an option.
Please don’t hesitate to call for updates, 465-3744 or email me at email@example.com.
The House Finance Committee has passed the FY17 operating budget representing roughly a $280 million reduction over FY16 numbers. This brings the state closer to a sustainable target for spending. Many difficult cuts are proposed but the operating budget fully funds K-12 education and maintains current funding for AMHS. All changes, such as cuts to the University, are subject to negotiation between the House and Senate in the coming weeks.
My focus is to balance the budget and prevent unsustainable cuts to vital services such as AMHS, K-12 education, and behavioral health. Additionally, as Chair of the Alaska Court System and Department of Environmental Conservation Subcommittee budgets, we have worked to implement cost saving measures, such as furloughs and half day court closures, to prevent job loss.
Despite challenging times, I am pleased with the Finance Committee’s decision to strengthen behavioral health funding. These funds will be focused on a three year pilot project to better equip communities in dealing with drug and alcohol addiction. With heroin addiction at unprecedented levels, investments in prevention and rehabilitation are needed.
Additionally, an amendment passed allocating funds to create a new public integrity unit within the Department of Law. The public integrity unit was formed in response to the high rate of prisoner deaths in 2016.
The House Finance Committee will next turn to oil tax credit reform and revenue bills, including the three Permanent Fund Earnings concepts: HB 224; HB 245; and HB 303/SB114. To stay engaged in the process visit the Alaska State Legislature website where you can view committee schedules, bill status, and watch meetings live online, or call me at 465-3744 for updates.