Walker renews push to use Fund earnings to fill deficit

Gov. Bill Walker called for continued budget cuts, more state wage freezes, fuel tax increases and again proposed using Permanent Fund income to shrink Alaska’s $3 billion-plus annual deficit in his 2018 fiscal year budget package released Dec. 15.

The administration’s $4.21 billion fiscal 2018 operating budget plan would modestly cut unrestricted General Fund, or UGF, spending by $47 million over the current, 2017 fiscal year budget.

However, the 2017 budget settled at $4.26 billion only after Walker vetoed $190 million from the $4.45 billion budget passed by the Legislature — the governor’s reaction to the Legislature turning down most of his broad deficit reduction plan.

In a press release accompanying the budget documents, Walker emphasized that the heavily scrutinized UGF portion of the operating budget is down 23 percent during his term.

“We have closed dozens of state facilities across Alaska, impacting services Alaskans have grown accustomed to receiving,” Walker said. “But Alaskans are increasingly looking for budget stability to protect Alaska’s economy. We can’t cut our way to prosperity. Since 2013, we have cut state spending by 44 percent. To fund services Alaskans rely on, it’s critical to discuss new revenue. We look forward to working with the Legislature to pass a sustainable fiscal plan during the upcoming session.”

The governor is also taking a voluntary one-third pay cut from his $145,000 annual salary that is set in law to “lead by example,” he said further in a statement from his office.

Office of Management and Budget Director Pat Pitney said during a Friday budget presentation that actual agency spending is down $123 million in the budget proposal, but those cuts are largely offset by $76 million of growth to state retirement funds, debt service and other annual obligations.

The base student allocation, or BSA, education funding formula that drives much of the state Department of Education budget, which is the largest single UGF spend in the operating budget, stayed the same as 2017, according to Pitney.

Walker again proposed legislation to draw 5.25 percent of the overall Permanent Fund value from the Fund’s Earnings Reserve Account to help pay for government services. The bill is very similar to what passed the Senate last spring but failed in the House. It would provide about $1.8 billion for agency operations and set aside enough for future Permanent Fund dividends in the $1,000 per Alaskan range.

The administration is also seeking to freeze pay raises for non-union state employees, which would likely save about $10 million over the next two years.

State employment is down by about 2,500 employees since the Walker administration took office, Pitney said and another 400 jobs are expected to be cut in the coming year. The administration feels there is room to trim about another 200 more jobs after that, she added.

“The level of state employment today is the same as 2002,” Pitney said, and the additional targeted cuts would result in employment levels not seen since the late 1990s.

Travel restrictions instituted by the administration about a year ago also saved the state about $8 million, according to Pitney.

“We’re keeping the cost pressure on,” she said. “It really comes down to continuous cost containment on a daily basis.”

Legislative leaders focused more on what the governor did not include in his than what was rolled out Thursday.

“I am disappointed the administration did not take their job more seriously and identify areas that should be cut, trimmed or eliminated,” said Finance Committee co-chair Sen. Anna MacKinnon, R-Eagle River.

MacKinnon said Senate Finance would continue the work it did last year to “make our state government run more efficiently and effectively for the people of Alaska.”

Incoming House Speaker Rep. Bryce Edgmon, D-Dillingham, acknowledged the governor’s willingness “to address the fiscal challenge head on,” while soon-to-be House Rules chair Anchorage Republican Rep. Gabrielle LeDoux echoed criticisms heard from Senate Democrats about the omnipresent oil and gas tax credit issue.

“The governor has started the ball rolling, but it’s now time for the members of the House and Senate to get to work to come up with responsible measures to fill the budget gap,” LeDoux said. “It’s my hope that fixing our flawed system of subsidizing the oil and gas industry with large tax credits will be part of the fiscal solution.

“I support efforts to increase oil and gas production in Alaska; but we can’t let those subsidies overwhelm our budget and jeopardize essential state services like public education and public safety.”

The governor’s budget includes $76 million — the formulaic statutory minimum — to pay refundable oil and gas tax credits. The state’s obligation at the end of fiscal 2018, however, is pegged to be nearly $1 billion.

Walker has said he wants to pay down the obligation as part of an overarching fiscal solution. He vetoed $430 million in credit payments approved by the Legislature last year saying the state could not afford to make the additional payments out of dwindling savings without also solving the structural budget problems.

Walker’s fuel tax bill would significantly raise taxes on virtually all taxable fuels over two years. On July 1, 2017, the tax on highway-use gasoline and diesel would double from 8 cents per gallon — currently the lowest in the nation — to 16 cents. It would go up again in July 2018 to 24 cents per gallon. The national average is 25 cents per gallon, according to the administration.

As proposed, the fuel tax increases would generate $40.3 million more in fiscal 2017 and more than $80 million in subsequent years. It would also shift fuel tax revenues to dedicated sub-accounts to encourage the money be reinvested in transportation maintenance.

The fuel tax bill did not move far in the Legislature last session, but drew the most support of all the industry and use tax increases that the administration floated.

The governor chose not to propose other broad based personal and industry taxes with his budget as he did last year, but given his budget and revenue bills released Thursday would still leave an $890 million budget gap, more revenue measures are likely to come.

Pitney acknowledged a change in strategy after the blanket approach proved unsuccessful.

“What we don’t want to do is take up time with the 12 (revenue generating) bills we submitted last year,” she said.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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