In a joint news release on Monday, House Speaker Bryce Edgmon (D-Dillingham) and Senate President Pete Kelly (R-Fairbanks) announced that the Alaska Legislature will call itself into another session in Juneau today at 11 a.m.
The special session – the 30th Legislature’s third called for 2017 – follows extensive wrangling over the state’s fiscal deficit. A compromise operating budget was approved late last month and signed by Gov. Bill Walker on June 30. The $4.9 billion budget for the new fiscal year, which started July 1, came with a $2.5 billion deficit to be covered entirely by state savings.
With the state’s coffers depending primarily on royalties from the petroleum industry, over the past half decade a combined drop in both prices and production levels have sent Alaska’s annual budgets deeply into the red. Forty-four percent of the state’s agency and capital spending have been subsequently cut since 2013, but cuts have failed to keep up with the decline in revenue. As a result, the difference has been made up from savings funds accessible by the Legislature, a venue which is fast closing.
“With the enactment of this budget, you just have about $2 billion left in the Constitutional Budget Reserve, which is our main savings account,” Sen. Bert Stedman (R-Sitka) explained last week. “The important point to point out is that will leave the state with little liquidity left.”
Among its uses, the reserve helps cover changes in operating budget and immediate agency needs. It also is available in the event of emergencies, such as responding to natural disasters. Therefore it helps to have funds at the ready in the account.
While Legislatures from the coalition-led House and Republican-majority Senate reached a compromise on ending costly cash credits for oil production last week, options for new sources of revenue through implementing a sales or income tax or by restructuring the Permanent Fund failed to make any headway.
For the latter, several bills in the House and Senate proposed a percent-of-market-value approach which would have allowed for a limited draw on Permanent Fund earnings for state operations, which would still allow for a dividend check to go to residents each year. Legislators were unable to agree on the percentage or proportion of such a draw, and the approach was excluded from the compromise operating budget.
Stedman believes the issue will be revisited next year, however. Among different options for bolstering revenue, a restructured fund came closest to closing the state’s deficit in the long run.
“For all practical purposes our savings accounts have been absorbed into the operating budget. We are now going to be having a conversation next year as far as the funds coming from the Permanent Fund,” he explained. “Without that I don’t see how we’re going to balance the budget next year.”
To protect the principal of the Permanent Fund for the future, he believed a constitutional amendment would be needed to set a cap on any such withdrawals. “Without that, I’m afraid the Permanent Fund is in jeopardy from having ad hoc withdrawals taken out of it,” said Stedman.
One area Stedman would like to see avoided is imposition of a statewide sales tax, which he felt would overly burden rural communities, many of which already have municipal sales taxes in place. Wrangell would be particularly hard hit, with its rate of seven percent already among the state’s highest. Whichever way the Legislature heads next year, Stedman expected it to be contentious.
“These are tough decisions because very few people want to compromise,” he said. “I expect the next session to be as turbulent as this one that just ended, and almost as long.”
With the capital budget to be revisited today, Edgmon and Kelly anticipate a conference committee will be appointed to consider it. “The intent is to finalize the compromise Fiscal Year 2018 capital budget and promptly reconvene the House and Senate floor sessions to formally pass the capital budget,” their joint statement explained.
Of interest to Wrangell will be inclusion of $5 million in the state’s Department of Transportation and Public Facilities’ harbor maintenance fund, for which the borough’s proposed replacement of the aging floats at Shoemaker Bay Harbor ranks highly. Should those funds survive the capital budget process, the city would match the allotted grant with $5.7 million of its own reserves and revenue bonds.
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