Bradners’ Alaska Legislative Digest - Commentary on Alaska issues and policy

PUBLISHERS: Mike Bradner, Tim Bradner / Business Office: (907) 440-6068 / 3037 South Circle Anchorage, AK 99507 / Fax: (907) 345-5683

Digest No 9/2019 February 24, 2019 Costs dumped on municipalities. school districts OMB: “Not our problem” Senate Finance Committee was where the action was last week as senators continued their re- view of Gov. Mike Dunleavy’s slashed budget (the House was meanwhile getting its committees organized). What struck us in listening to a week of presentations by the state Office of Manage- ment and Budget and state agencies, was how little regard is given for the effects of the sudden and deep budget reductions on municipalities, school districts and the state’s economy. OMB Director Donna Arduin said the administration has no control over decisions made by governing bodies of local governments and schools, in effect saying, “not our problem.” With this, the new state administration is digging itself deeper into a hole with the legislators as they drill down into the thinking behind the governor’s cuts. In short, there doesn’t appear to be any thinking, at least of the consequences.

We note OMB director Arduin’s opening remarks on the budget to the committee. She high- lighted the governor’s priority for public safety and his goals of achieving a balanced budget and to maintaining reserves with no further drawdown on the Constitution Budget Reserve. At $2.5 billion the CBR is at the minimum needed for annual cash flow and a contingency for emergen- cies, she said. We have to point out that a lot of the deficit could be covered by a smaller Perma- nent Fund dividend and modest new taxes. – Continued on top, page 2

There’s got to be something upbeat here! Here it is: Senate Finance cochair Sen. , R-Sitka, again complimented OMB for pressing agencies to assign priorities to their functions. “We’ve waited for years for this, and we’ve never been able to get it,” he said. On another note, the administration is moving rapidly to consolidate functions among agencies. The Department of Transportation and Public Facilities, in its presentation to Senate Finance, said it has already transferred people to the new centralized procurement group in the Dept. of Administration, and that staff from other agencies are now joining DOTPF’s new central facilities management and maintenance group. A limited consolida- tion effort was underway in the Walker administration, but Dunleavy has speeded this up.

Our reports are protected by Copyright. Please do not forward to others without permission. © COPYRIGHT Email: [email protected] Justification for sharp cuts prompts skepticism – Continued from top, page 1 The administration’s justification for the cuts prompted skepticism. Arduin argued the state’s econ- omy is in recession because of the state fiscal imbalance, and this sounded like something out of an alternative reality to senators. Sen. , R-Fairbanks, said the real reason the economy is in recession was because oil prices and state revenues dived in 2015 and have not recovered.

Sticking to her argument, Arduin said the economy will recover once the fiscal imbalance is corrected and the private sector is unleashed. Sen. noted Alaska has a small, resource-de- pendent economy where the state itself is often a driver of private sector growth through entities like the Alaska Industrial Development and Export Authority. Arduin said OMB is developing economic modeling that will show the long-term growth effects of the budget reduction strategy. Those will be presented to the Finance committee. Micciche asks if analysis done of effects of budget cuts Sen. , R-Kenai, asked if OMB has done any analysis of the negative effects, such as stimulating out-migration, of the budget cuts. Arduin ducked the question and stuck to the script: “Our numbers will show that if you get the budget under control, there will be an increase in Gross State Product.” Micciche asked again if OMB had determined if there would be job losses and out-migration. Arduin again said, “We clearly believe that data will show that once we solve our (fiscal) problem, private investment will offset losses of jobs in the public sector.”

Arduin said OMB’s analysis predicts a loss of about 500 state jobs. She acknowledged this does not include the university (UA President Jim Johnsen estimated a potential loss of 1,300) or apparently several hundred employees of the Alaska Marine Highway System (the presumption here may be that ferry workers will be employed by a private sector owner/operator yet to be determined). Sen. , D-Anch., said the university’s Institute of Social and Economic Research had made a preliminary estimate of 16,000 jobs lost to the economy because of the budget reductions. Governor’s plan to usurp oil property tax for state faces a tough road When the administration’s plan to remove the ability of municipalities to tax oil and gas properties came up for discussion in committee, Sen. Bishop said this would cut $372 million from the North Slope Borough’s budget; $38.4 million from Valdez; $15 million from the Kenai Borough; $11.8 million from the Fairbanks North Star Borough, and $2.4 million from the Municipality of Anchorage. Sen. Micciche said the Kenai Borough’s loss will have to be made up by local taxpayers. Arduin’s response: “We can’t comment on how local governments structure their finances.” What we hear from legislators is that this proposal will not make it out of its first committee.

Page 2 Alaska Legislative Digest No. 9/2019

– See more on university, page 5 Education commissioner, OMB in frying pan on budget Senate Finance also had the Department of Education and Early Development as well as OMB in the frying pan last week, and every member of the committee was stoking the fire. It was obvious whose education budget this was. Under Art. 111, Sec. 25 of the Constitution the Board of Education has autonomy and is to prepare the education budget. This isn’t to say a governor cannot change the educa- tion budget but this would be done in a public process. However, it’s apparent that the OMB prepared this budget and drove it downward. Most commissioners of agencies did not see their FY 2020 budgets until shortly before the Feb. 13 public unveiling, and we guess this would include the DEED.

Sen. Bill Wielechowski, D-Anchorage, opened the line of inquiry, questioning the department’s con- stitutional duty to produce and support the education budget (AS 14.07.150). Education Commissioner Michael Johnson was uncomfortable, and was unclear and cautious in his responses to legislators.

• The Commissioner responded simply by saying: “The board tabled a motion (to approve the governor’s budget) to let the process play out in the Legislature’s budget process.” • Sen. , D-Northwest Arctic, rephrased the question more bluntly: “Commissioner, what I’m hearing you say is that the state board did not fulfill their statutory obligation to approve this budget.” • Commissioner Johnson’s answer was the same as before.

Sen. , D-Bethel, was showing anger at this point. Sen. Donny Olson, D-Northwest Arctic, was close behind, as was Sen. Click Bishop of Fairbanks. Everyone had their turn at the com- missioner and OMB director. No one came close to voicing support for the budget.

Von Imhof: Why didn’t administration address cost-drivers, like health? The Basic Student Allocation represents the K-12 state support that is forwarded to school districts. The Dunleavy budget cut the BSA by $1,050 per student, from $5,930 to $4,880, or back to the 2005- 2006 funding level, about a 25 percent reduction. The level of K-12 support was $1.2 billion for the current year, up from $805 million in FY 2006, a 24.56 percent increase. During that period statewide school enrollment dropped from 131,000 in 2006 to 129,000 in 2018, but much of the increase was in the cost of school employee benefits, up from $302 million in 2006 to $569 million in 2017 with most of this driven by health care cost increases, Senator von Imhof said.

Von Imhof asked OMB Director Arduin why the administration did not address chief cost-drivers like health care, instead implementing broad cuts with no mitigating factors. Arduin’s response was that the administration doesn’t control school district decisions. She cited statistics that only 54 percent in school spending goes to the classroom. Note: This ignores the extreme high cost of operating and main- taining rural schools, which are non-classroom costs. – More on education cuts, page 6 Page 3

Alaska Legislative Digest No. 9/2019 . . . Status of Bills . . .

Introduced in the House Introduced in the House (Cont)

-- HB 1: Establishing the In-Home Personal Care Ser- -- HB 21: Insurance coverage for contraceptives (By vices Advisory Board (By Johnson) ...... To H&SS, L&C Claman) ...... To H&SS, FIN -- HB 2: Convene legislature in Anchorage (By Raus- -- HB 22: Extending the termination date of the State cher) ...... To C&RA, SA, FIN Suicide Prevention Council (By Tarr) ...To H&SS, FIN -- HB 3: State land, discounts, veterans, assignments -- HB 23: Registration fees for snowmobiles and off- of PFDs (By Rauscher) ...... To M&VA, RES, FIN way vehicles (By Neuman) ...... To TRANS, FIN -- HB 4: Assault in the third and fourth degrees, and -- HB 24: Instruction in a language other than En- reckless endangerment (By Rauscher)...... To SA, JUD glish (By Kreiss-Tomkins) ...... To EDUC, L&C -- HB 5: Prohibit expenditure of state money on gen- -- HB 25: Definition of peace officer, private police der reassignment (By Rauscher)... To SA, H&SS, EDUC organizations (By Sullivan-Leonard) ..To EDUC, L&C -- HB 6: Rules for the display of national state mottos -- HB 26: Contracts for highway construction proj- (By Rauscher) ...... To SA, EDUC ects (By Tuck) ...... To TRANS, L&C -- HB 7: Sex education, reproductive and human sex- -- HB 27: Chemical flame retardant on child-related uality education (By Rauscher) ...... To EDUC, H&SS products (By Tarr) ...... To RES, L&C -- HB 8: Liability of an excavator for damaging an -- HB 28: Equal pay for comparable work, minimum underground facility (By Claman) ...... To JUD, RES wage (By Tarr) ...... To SA, L&C -- HB 9: Criminal law and procedures, sentencing, -- HB 29: Insurance for benefits through telehealth (By Rauscher) ...... To SA, JUD, FIN (By Spohnholz) ...... To H&SS, L&CC -- HB 10: Misconduct involving a controlled sub- -- HB 30: Liability of an employer in the case of stance (By Kopp) ...... To L&C, FIN death, impairment (By Josephson) ...... To L&C, FIN -- HB 11: Participation of peace officers in the defined -- HB 31: Special appropriation to the Alaska perma- benefit retirement plans (By Rauscher) ..... To L&C, FIN nent fund (By Kreiss-Tomkins) ...... To SA, FIN -- HB 12: Act relating to protective orders (By Kopp) -- HB 32: Making certain entities exempt from feder- ...... To SA, JUD al taxation (By Kreiss-Tomkins) ...... To C&RA, FIN -- HB 13: Requiring the Department of H&SS to -- HB 33: Registration of sex offenders (By Claman) apply for waiver, work requirements for state medical ...... To SA, JUD assistance program (By Kopp) ...... To H&SS, L&C, FIN -- HB 34: Naming the Scott Johnson Memorial -- HB 14: Assault in the first degree, sex offenses, Bridge (By Talerico) ...... To SA, TRANS sentencing for strangulation (By Lincoln) ...To SA, JUD -- HB 35: Participation before the Board of Fisheries -- HB 15: Sentencing for vehicle theft in the first de- and Board of Game (By Stutes) ...... To FISH, RES gree (By Fields) ...... To SA, JUD -- HB 36: Repeal exemption for containing loads on -- HB 16: Sales of milk, raw milk and milk, raw milk highways (By Stutes) ...... To TRANS, JUD products (By Tarr) ...... To RES, FIN -- HB 37: Exempting certain low voltage projects -- HB 17: Repeal of the certificate of need program from contractor and electrical administrator require- for health care facilities (By Rauscher) To H&SS, FIN ments (By Talerico) ...... To ENERGY, L&C -- HB 18: Public officials and employees, collective -- HB 38: Appropriations, capital and supplemental bargaining agreements (By Knopp) ...... To L&C, FIN to capitalize funds (By GOV) ...... To FIN -- HB 19: Exemption of certain water taxi operators -- HB 39: Appropriations, operating and loan pro- from regulation (By Knopp) ...... To TRANS, RES gram expenses of state government (By GOV) To FIN -- HB 20: Sexual assault examination kits sent for -- HB 40: Operating and capital expenses of the testing within six months (By Tarr) ...... To SA, FIN state’s mental health program (By GOV) ...... To FIN

Page 4 – Continued at right, page 5 Alaska Legislative Digest No. 9/2019 . . . Status of Bills . . .

Introduced in the Senate Introduced in the House (Cont.) -- SB 61: Claims against protection and indemnity -- HB 41: Management of enhanced stocks of insurance policy of vessel owners (By Stevens) ...... shellfish (By Ortiz)...... To FISH, FIN ...... To L&C, FIN -- HB 42: An Act Relating to outdoor advertis- -- SB 62: Appropriation of alcoholic beverage excise ing (By Rauscher) ...... To TRANS, SA tax proceeds for community assistance (By GOV) -- HB 43: Exempting the state from Daylight ...... To C&RA, FIN Saving Time (By Rauscher) ...... To SA, FIN -- SB 63: Repeal allocation and refunds of fisheries -- HB 44: Fees for using an automated teller business tax to municipalities and local governments; machine (By Ortiz) ...... To L&C repeal revenue sharing for fishery resource landing tax -- HB 45: Extending termination of Board of (By GOV) ...... To C&RA, FIN Dental Examiners (By Ortiz) ...... To L&C -- SB 64: Repeal state aid costs of school construction -- HB 46: Appropriations from earning reserve debt (By GOV) ...... To EDUC, FIN account for PFD (By GOV) ...... To SA, JUD -- SJR 7: BLM implement oil and gas leasing on -- HB 47: Directing the Department of Revenue ANWR coastal plain (By Birch) ...... To RES to pay dividends (By GOV)...... To SA, JUD -- SB 65: Dept. of Labor and Workforce Development -- HB 48: Exempt service, persons in profes- monitor state career and technical education programs sional capacity (By Wilson)...... To L&CC, FIN (By GOV) ...... To L&C, FIN -- HB 49: Criminal law, reports of involuntary -- SB 66: Merge Div. of Labor Standards and Safety commitment (By GOV) ...... To JUD, FIN and Div. of Workers’ Compensation into a Division of -- HB 50: Pretrial release, program credit to- Workers’ Safety and Compensation (By GOV) ...... ward service of a sentence (By GOV) To SA, JUD ...... To L&C, FIN -- HB 51: Program allowing probationers to -- SB 67: Repeal the Alaska Public Broadcasting earn credits (By GOV) ...... To SA, JUD, FIN Commission (By GOV) ...... To SA, FIN -- HB 52: Eliminating marriage as a defense, -- SB 68: Dental hygiene practice; advanced practice crimes of sexual assault (By GOV) To JUD, FIN permit and eliminating collaborative agreements for -- HB 53: Fire suppression restoration projects, dental hygienists (By Giessel) ...... To L&C, FIN earthquake disaster relief (By GOV) To FIN -- SB 69: Exception from permit and fee requirements -- HB 54: Appropriations for capitalizing funds for certain charitable gaming activities (By GOV) ...... (By GOV) ...... To FIN ...... To L&C, FIN -- HB 55: Establishing May 31 of each year as -- SB 70: Repeal the ocean rangers program (By Katie John Day (By Foster) ...... To C&RA GOV) ...... To RES, FIN -- HB 56: Establishing Hmong-American Veter- ans Day (By Tarr) ...... To M&VA, C&RA Senate Committees’ Actions -- HB 57: Expand period for child under 16 to -- SB 41: Number of superior court judges in third ju- work in summer (By Wilson) ...... To SA, L&CC dicial district (3 do pass)...... JUD to FIN -- HB 58: Election of permanent presiding offi- cer (By Rauscher) ...... To SA, JUD Committee key: -- HB 59: Repeal municipal oil and gas property RLS Rules H&SS Health and FIN Finance Social Services taxation (By GOV) ...... To RES, C&RA, FIN JUD Judiciary Special committees: -- HB 60: Repeal of the senior benefits payment SA State Affairs ENERGY Energy program (By GOV) ...... To C&RA, H&SS, FIN RES Resources FISH Fisheries (More House bills listed next issue) TRANS Transportation ECON Economic Dev. L&C Labor and Commerce M&VA Military and Veterans’ Affairs Page 5 Alaska Legislative Digest No. 9/2019

Education: No question who is in charge - Continued from page 3 There are other cuts in addition to the BSA such as $19 million in FY 2019 (current year) sup- plemental funding and another $30 million committed by the Legislature last year for FY 2020. In addition, department travel is cut, as is $3 million for the WWAMI medical education program, which leaves some 20 students in mid-process stranded. Also, funds are cut for head start, best beginnings, parents as teachers, and pre-Kindergarten.

While the Senate committee had both Arduin and Commissioner Johnson under fire there was no question who was in charge. Commissioner Johnson answered the committee’s questions reluctantly. It was obvious Director Arduin held the reins. Should Senate Finance haul the state Board of Education before it? Wielechowski and Olson framed the critical question regarding the Board of Education’s responsi- bility to propose and sign off on a budget (the state board is created under Art. III, Sec. 25 of the Con- stitution). It would seem appropriate for board members to be asked to appear before the Legislature and say whether they support the budget, whether they were given opportunity to weigh in on it, and if not then why not. If necessary the committee, or other committees, could request subpoena power to compel their appearance. The issue on the table here is OMB’s unilateral reduction of budgets, including elimination of programs, without regard to education policy and impact, which is where the Board of Education would weigh in. Sen: Hoffman: “It’s all about the checkbook” Sen. Hoffman phrased it this way: “It’s all checkbook . . . it can’t be all checkbook . . . it can’t be always about the checkbook.” His point being that some consideration of the final product has to be made. He told Arduin: “It was you who said it was all about the checkbook,”meaning the budget bot- tom-line result is more important than impacts.

Legislators ponder course on coastal management initiative (Cont.) Big cut in school debt reimbursement Continued from page 3 This is a $100 million hit on municipalities that issued the bonds for school construction, pledging their full faith and credit. It is a big hit for local taxpayers who must now pay the bonds. Municipal- ities would increase local taxes or cut local services to pay debt service. This support program is in suspension until 2020 as far as new bonds, but previously-sold bonds are still being supported. While the state is not legally obligated to this debt-support there is a sense of moral pledge by the Legisla- ture for the existing debt. Senate Finance members noted Gov. Dunleavy’s pledge of no new taxes but he would raise taxes on citizens indirectly by dumping the cost of programs on local governments. The school debt program dates to 1969, before North Slope oil flow. At the time local communities were struggling with heavy tax levies and school bonds were beginning to fail in elections. Even be- fore the era of big oil money the state stepped in to help make new schools possible.

Page 6 Alaska Legislative Digest No. 9/2019 Tying up the state ferries, with no plan for a restart Last week the Dept. of Transportation and Public Facilities said it will shut down state ferry service at the end of September with no plan as to when, or if, service to coastal communities will be restart- ed. In Senate Finance hearings OMB director Arduin said the governor’s office and DOTPF would recruit a consultant to advise on options including divestiture of the Alaska Marine Highway System. During the hearing Finance cochair Natasha von Imhof asked if DOTPF had consulted any of several ferry system reorganization plans and studies done over several years. The agency said previous work was not consulted. Note: Regarding consultants, there are no other marine highways like Alaska’s in the U.S., only regional ferry commuter systems.

The committee was irritated when it became apparent that the marine highway system had already stopping taking reservations after October without telling legislators. During the Finance hearing Sen. Bill Wielechowski consulted the system’s web page on his mobile phone and made the discovery. “You’ve already done this and you didn’t tell us,” he said to the OMB director.

This was all a bit much even for Sen. , R-Mat-Su, whose district is not ferry-depen- dent and who supports the governor’s broad goals. But with his military background Shower sees a recklessness to leaving isolated coastal communities with no capability of heavy marine lift. In an emergency there is no substitute for having vessels available to sustain isolated communities, Show- er said. Airlift won’t be enough. But there are also questions about the administration’s support for rural airports. Senate Finance members hope to learn more soon from DOTPF Commissioner John MacKinnon in person. UA’s Johnsen holds his own in defending the university budget University of Alaska president Jim Johnsen got good marks last week for standing his ground in Senate Finance, defending the university’s budget against the governor’s proposed 40 percent cut. If the cuts stand there will be a state university, as there has been for over 100 years, but it won’t be much of one. (We reported on impacts to the university in last week’s report, Legislative Digest No. 8). What struck us about the committee session on the UA were OMB’s preliminary comments as to the rationale used in determining their proposed spending. In essence, OMB looked at the per-student cost of the system and compared it with national averages for state university per-student costs, which include states’ various community college systems. OMB Director Arduin said the smaller UA com- munity and technical-type campuses are actually in the ballpark with these (a 40 percent geographic “Alaska” cost differential was also allowed by OMB) and University of Alaska Anchorage per-stu- dent costs also seem within range. What blows the system cost average out of the water, however, is the very high per-student cost of the University of Alaska Fairbanks. Shortly after that was said UA officials were scrambling to see how the cost for UAF was derived. Fairbanks is the university’s main research campus with most of it federally-supported, so there could be a problem in the way OMB’s analysis was done. Support costs of the research facilities may be rolled into OMB’s number for UAF.

Page 7 Alaska Legislative Digest No. 9/2019 Senate Finance takes up DH&SS, Medicaid spending Senate Finance took up the Dept. of Health and Social Services budget for a preliminary overview Feb. 22. The department has one of the biggest overall budgets in the state at $3.25 billion total funds in current FY 2019, which would be reduced to $2.47 billion in FY 2020, a $781.1 million reduction. Much of the total reduction is federal at $460 million, and most of the reduction in federal match (50 percent to 90 percent) for state funds spent for Medicaid, the health care program for low income Alas- kans. The state general fund spend would drop from $1.233 billion to $908.6 million.

A $225 million state ($450 million federal in addition) reduction in Medicaid is proposed for FY 2020, but this will depend on the federal Center for Medical Services granting a waiver to the state to change its program, the DH&SS told the committee. Since waivers can take two years-plus to obtain the administration would tap $172 million remaining in the Statutory Budget Reserve to backstop fund- ing in FY 2020, 2021, and 2022 if the federal approval is delayed (which it virtually certain, committee members said). Overall changes in Medicaid are still being worked out and those will be presented to the Finance committee soon, the agency said. Information on deletion of Medicaid optional services is yet to come, along with word on changes to provider payments. (More on DH&SS in our next report.) Public weighs in on SB 16, alcohol licenses, permits for community events, fairs The Senate Labor and Commerce Committee took public testimony for SB 16 on Feb. 19. This is Sen. Peter Micciche’s bill relating to alcoholic beverage licenses and permits, and bond requirements, for certain beverage license holders. There were some technical changes to the bill mostly in regard to permits and eligibility. Sen. Micciche and his staff talked about those and answered questions. Public testimony was swarmed with support for the bill. Stephen Rice, president of the board of directors for the Tanana Valley State Fair Association, summed it up well when he said, “We welcome any action that the Legislature would perform to allow for Alaska fairs, theatre and recreational sites to continue or improve our services to our communities.”

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