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. Bert Stedman, 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. Click Bishop, 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. Natasha von Imhof 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. Peter Micciche, 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. Bill Wielechowski, 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. Donny Olson, 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. Lyman Hoffman, 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)..