What is at issue in the Alaska state budget? The dollars that lawmakers can spend as they see fit — the unrestricted general fund revenues. For the 12 months that ended June 30, that part of the budget was $4.65 billion. After Gov. Mike Dunleavy’s vetoes, it is down to $4.04 billion.
How much did the Legislature cut? About $190 million.
How much did Gov. Mike Dunleavy cut in his vetoes? More than $400 million, through vetoes that eliminated or reduced spending for 182 programs and services.
What happened next? The Legislature tried but failed to reverse the governor’s cuts. The Alaska Constitution requires three-quarters of the Legislature — 45 of 60 lawmakers, the so-called super majority — to vote to override a veto. They had a one-time shot to do that during the first five days of a special legislative session that began July 8. Lawmakers were so divided, they didn’t even gather in the same place. Of those in Juneau, 37 voted to override the vetoes and one House member voted no.
What is the latest? In their second special session, lawmakers passed key legislation including a new capital budget and a new operating budget with a $1,600 Permanent Fund dividend. However lawmakers did not pass the new operating budget with another votes to withstand new vetoes. The Legislature adjourned its second special session Aug. 6.
The governor on Aug. 8 signed the capital budget and announced programs and projects being vetoed anew, in part or in full. On Aug. 12, he announced he would restore Alaska’s senior benefit program in the operating budget but intended to stick with most of the operational cuts he made earlier. Specific new vetoes in the operating budget are to be announced soon.
Dunleavy told reporters that he still wants significant cuts and a $3,000 dividend. In a statement on July 29, the governor said House Bill 2001 “robs” Alaskans of their PFD.
Ultimately, the governor announced a series of spared programs before his final round of vetoes. In the end, the State of Alaska expects to spend $300 million less on operations this fiscal year than the year before. Dunleavy vetoed $222 million and the Legislature cut $76 million before the vetoes.
Among key budget decisions for the 2020 budget year, the operating budget funding for homelessness programs and all funding for one of our key partners, the Alaska State Council on the Arts, was restored. Specifically, about $2.2 million was added back to the operating budget for grants that fund homeless shelters, day shelters and soup kitchens — services that prevent homelessness. However, an Alaska Housing Finance Corp. program serving people experiencing homelessness was cut by $3.6 million as was $1.75 million in the capital budget for rural housing. All public broadcasting operating grants were zeroed out along with support for the Cold Climate Housing Research Center.
What are the State of Alaska’s main revenue sources? Have they changed in recent years? The state’s main source of revenue still is oil, just as it has been since 1977. But as North Slope production has declined, so has oil’s percentage of state general fund revenues. When production was at its peak of 2 million barrels per day more than 30 years ago, oil taxes and royalties provided as much as 90 percent of state general fund dollars. This past budget year, with North Slope production down to about 500,000 barrels a day, oil covered about half the state general fund budget.
Other taxes, such as tobacco, alcohol, motor fuel and non-oil corporate taxes provided about 10 percent of unrestricted general fund dollars. Permanent Fund earnings contributed about 40 percent — the first time Alaska has tapped the savings account to help pay for public services in the annual budget.
Alaskans are hearing about tax credits for oil companies. Why is the state giving oil companies tax breaks at the same time the governor and some legislators want to cut key programs and services? The state about 10 years ago embarked on a large-scale program of tax incentives to attract new oil and gas explorers and promote new production in Alaska. Companies were allowed credits against their taxes owed, based on their investments in the state. If they did not need the credits, they could sell them to investors. After issuing several billion dollars in tax credits over the decade, the Legislature decided the program was unaffordable and has phased out the credits.
Separate from that program, state tax code allows companies to reduce their oil production tax rate when oil prices fall below a threshold set in law. The intent of the 2013 law was to lessen the tax rate at mid-level oil prices to encourage new investment and increase production. That per-barrel credit last year reduced potential state production tax revenues by more than half, from about $2 billion at the maximum tax rate of 35% to about $815 million. In addition to production taxes, oil and gas companies paid about $1.4 billion to the state general fund last year in corporate income taxes, property taxes and royalties.
With more than $630 million in cuts, what are some of the main programs and services impacted? Wiped out completely: Senior citizen benefits; Head Start and early childhood education programs; Alaska Legal Services Corp., an agency that helps low-income Alaskans; Alaska State Council on the Arts; and adult dental care covered by Medicaid. Cut dramatically: the state share of local school construction debt payments (cut in half); help including housing and supports for those experiencing homelessness (cut by more than 75 percent); the state ferry system (cut by one-third); and the University of Alaska statewide system (cut more than 40%).
What is the impact on Alaska nonprofits? Nonprofits will feel the budget cuts in two ways: Less state money to provide essential services for needy Alaskans, children, the elderly and community programs; and making it more difficult to raise matching funds from private and federal sources. All in all, the governor’s veto cuts will cumulatively grow larger over time as nonprofits lose the chance at some matching funds.
Are these cuts a sure thing? Yes, unless the Legislature votes to restore the funding in a new budget measure and the governor agrees not to veto the money a second time.
What does Gov. Dunleavy want? A $3,000 Alaska Permanent Fund dividend, first and foremost. He also wants to reduce the level of services provided by state government. He believes private businesses will thrive with less government, and that in time will create more jobs.
What does the opposing side in the Legislature want? A smaller dividend that would still allow the state to fund the university, schools and other community services reduced by the governor.
What are the key arguments? Supporter of the $3,000 PFD say individuals can best make decisions how to spend their share of state oil revenues; this group includes part of the Republican-led Senate majority caucus and all of the House Republican minority caucus. Opponents of the large dividend say community needs should not be shortchanged for the benefit of individual wants. This group includes others in the Senate majority caucus, most of the Senate Democrats in the minority and all of the House Democrat-led majority.
What remains to be decided?
1) The amount of this year’s Permanent Fund dividend;
2) This year’s public works, or capital, budget for roads, airports, building repairs and other projects statewide;
3) Whether lawmakers will restore the funding that was vetoed by the governor. The House Finance Committee on July 22 moved a bill — HB 2001 — that would restore much of the vetoed funds. The measure still needs to go through the full House and Senate; and
4) An accounting function that was approved every year until now that protected specific state accounts such as the one that helps subsidize rural electricity costs — the Power Cost Equalization program — and one that distributes scholarships to Alaska college students. That accounting fix hasn’t been approved and those programs won’t have a source of funding until it is. The money was swept off the table and put into a savings account, the Constitutional Budget Reserve Fund. Putting the money back into the special accounts requires approval by three-quarters of lawmakers through what they call a “reverse sweep.”
Why is the amount of the Permanent Fund Dividend a factor in the budget cuts? Because the state has a limited amount of dollars to spend. A dollar that goes out as dividends cannot also go to pay for schools. It is balancing act between the wants of the individual versus the needs of the community.
Will Alaskans get a PFD in October? Most everyone expects the Legislature will resolve the budget situation in time to pay out the annual dividend. But it could be early August before there is a compromise and Alaskans know the amount of this year’s PFD.