Senate Passes Proposed Budget

Now the Real Battle Begins

Medium Grind – News and Analysis

The Alaska State Senate passed its version of the FY 17 operating budget back to the House on Monday. The Senate proposal adds back $25 million to the University budget, but comes in about $63 million below the House’s proposal. That is somewhat deceiving though because $100 million of the Senate’s cuts come in the form of an unallocated reduction that is likely unconstitutional.

For budgeting basic details see Grinder News’ “Budget Basics for the Rest of Us.” An unallocated cut is not directed to anything specific, but it’s rather a dollar amount that the governor or his commissioners must take wherever they can. It’s a tactic Sen. Pete Kelly (R-Fairbanks) said he likes in an interview earlier this year, but it also is likely an unconstitutional delegation of Legislative powers to the Administration. A legal opinion requested by Dennis Egan (D-Juneau) says the court would likely strike down the unallocated cut if it remains in the budget.

Kelly has described this large unallocated cut as a placeholder for actual cuts that could take place as negotiations over the proposed budget continue. It begs the question though. Republican legislators have said all year that cuts could and should be made. Budget subcommittees and both Finance committees scoured through department budgets, but apparently they failed to uncover specifically where those cuts could be made. Apparently they hope the administration will have more luck.

Now that the Senate has passed its version of the budget the House will surely fail to concur with the changes. The next step is a conference committee consisting of members of each body to hash out some negotiated version that can pass in both bodies. While the Legislature has reached this point sooner than normal, finalizing a budget is still likely to take until the end of session ... or beyond. They may come up with a budget, but they’re still far from paying for it. Now both the House and Senate will have to debate over and decide which revenue measures they will adopt, if any, to balance the books. There is still plenty in savings to cover this year’s budget, should legislators fail to agree on any revenue measures, but the governor is not likely to accept that result. They’ll have to come up with something or he’ll almost certainly send them back to work.

It’s not absolutely necessary, but it’s likely part of this year’s budget process will require a draw on the State’s Constitutional Budget Reserve account. That requires a three-quarters vote in each house, and that means at least three House Democrats will have to vote yes. The Democrats have fought to restore many of the cuts made by the majorities, and it’s likely some of those cuts will need to be addressed to get a CBR draw passed.

Whatever the final budget looks like, the large unallocated cuts will likely have to be removed or specified. While Legislative proponents of the tactic say it affords more flexibility to the administration, it’s really a near literal passing of the buck. Legislators would get credit for making a large budget reduction, and the administration would suffer the consequences for the ensuing reduced services. It’s also a little ironic that majority members are pondering taking their separation of powers suit (for Medicaid expansion) against the administration to the Supreme Court while at the same time trying to delegate some of their power, and responsibility, to the governor. Majority members like to call cuts “tough decisions,” but those decisions are a lot easier when you can pin the tail on the governor.

In any case the expenditures side of the ledger will slow down now as legislators take up the revenue side with the various measures being compared and altered. The majorities don’t seem to have much appetite for an income tax, and the minorities don’t seem interested in a revenue approach that only uses Permanent Fund earnings. The Permanent Fund earnings proposals are really the largest source of revenue. Other sources will need to be tapped in order to close the entire $3.8 billion fiscal gap, but more than half will need to come from some version of PF use. Minority Democrats have offered an oil tax reform bill and their own version of a tax-credit-reduction bill, and some of them say those should be part of any comprehensive fiscal plan. The oil tax bill does little or nothing at current prices, and it’s likely some form of oil and gas tax credit reduction will pass this session. The budget debate has been intense, but the revenue debate is really where the rubber will hit the road this session. Prepare for squalls.