Alaska Gov. Walker looks again to Permanent Fund for revenue in new budget proposal

Alaska Gov. Bill Walker unveiled a state budget proposal Thursday that sets the stage for another battle with lawmakers over the future of the Permanent Fund.

The $5 billion spending plan assumes that the Legislature will agree to restructure the fund and use some of its earnings to pay for government — a step the state House refused to take last year, even with Alaska facing a huge deficit stemming from low oil prices.

Walker's office says his new proposal would shave another $123 million, or 3 percent, in unrestricted general fund spending on agency operations, and it calls for at least two days of furloughs for state workers, who will be asked to make bigger health care payments too. It also shut down work on one of the state's last big megaprojects, the proposed $570 million, 50-mile road leading out of Juneau.

But the budget's overall structure is similar to Walker's proposal last year — with a multibillion-dollar budget hole filled largely with earnings from the Permanent Fund, which has traditionally paid Alaskans' dividend checks.

A new revenue forecast also released Thursday shows no major change to Alaska's structural budget problem: Oil revenue, which has long paid the vast majority of state's bills, is still far less than government spending.

[Full proposal at the state Office of Management and Budget website]

"There is no magic pot of money out there for us to go after," Revenue Commissioner Randy Hoffbeck said in a phone interview. "We've got basically the same options that we had last year."


In a prepared statement, Walker said he was resurrecting a version of legislation to restructure the fund that the Senate passed this spring in a 14-5 vote. The bill would have set dividends at $1,000 for three years, but the House Finance Committee rejected the legislation, even after a reconfigured proposal would have increased the dividend amount to $1,500.

The Permanent Fund bill may fare better in the upcoming session, once the House's Republican leadership is replaced by the incoming majority coalition, made up mostly of Democrats and a few Republicans. And the incoming House Speaker, Democrat Bryce Edgmon of Dillingham, said Thursday that he was ready to get to work.

"There is no question that Gov. Walker is willing to address the fiscal challenge head-on during the upcoming session. The members of the new House majority coalition share his resolve," Edgmon said in a prepared statement. "We will give the governor's proposals a fair hearing and will look at them very closely."

A half-dozen other cash-producing proposals that were part of Walker's big budget-balancing package last year — including an income tax and increased taxes on oil companies — were left out of his new state spending plan. Those ideas were blocked by the Legislature last year.

One of the Walker administration's tax proposals is back, however — a tripling, over the next two years, of the state's gas tax, which currently is the nation's lowest.

But a discussion about bigger, broad-based taxes on sales or income will wait until lawmakers convene in January, when the Walker administration hopes to start a dialogue with them, said his budget director, Pat Pitney.

As a result, there's still a $900 million gap between spending and revenue in the governor's proposal, according to his office.

"We're looking for a solution," Pitney said in a phone interview. "But we understand that whatever it is, the Legislature has to pass it."

Walker's proposal, which would cut 400 state jobs, continued to whittle away at government spending, which his office says has dropped 23 percent since he took office two years ago.

A big chunk of the $123 million in general fund spending sliced from agency operations — about $40 million — is actually replaced with new revenue from Walker's proposed gas tax increase. And about $30 million of the savings comes from Medicaid and criminal justice reform bills passed by the Legislature last year, according to Walker's office.

Other proposed cuts include:

* Plans by the health department to save more than $3 million by closing juvenile justice centers in Nome and Ketchikan.

* A proposal by the natural resources department to save $300,000 by downsizing its staff at state parks in the northern part of the state, near Delta Junction, and turning operations over to a concessionaire.

* Slight reductions from the level of state ferry service in this year's budget.

Spending on schools and the state university system would go largely unchanged in Walker's budget, though inflation will mean the same amount of spending will pay for less. And the Walker administration also found money for at least one new project: resurrecting the shuttered Point Mackenzie Correctional Farm, which would cost $3.8 million next year.

Pitney, the budget director, said the vast majority of state spending is set out in various statutes, making it hard for the administration to propose deeper reductions. Public employees' health care will cost $14 million more next year, she said, while the state will need to budget $44 million in cash subsidies for oil and gas companies above this year's $30 million.

One member of the Senate's Republican-led majority suggested that Walker should have proposed more substantial cuts to state spending, though she didn't propose any specific reductions herself.


"I am disappointed the administration did not take their job more seriously and identify areas that should be cut, trimmed or eliminated," Sen. Anna MacKinnon, R-Eagle River and co-chair of the Senate Finance Committee, said in a prepared statement. "We will identify additional reforms and restructuring to make our state government run more efficiently and effectively for the people of Alaska."

One other position that could meet with resistance from Republicans is Walker's proposal to pay the legal minimum of $74 million in oil and gas company tax credit subsidies — less than one-tenth of the tax credit claims that the state expects in the coming year.

Walker vetoed $430 million in credit payments that lawmakers budgeted for the current year, and administration officials say that the governor isn't interested in paying more than the minimum until the state budget is stabilized.

Walker has said that "we're only prepared to fund this at the minimum, until we come up with a larger solution," said Ken Alper, the governor's tax director.

Thursday's budget announcement, by email, came with far less fanfare than last year's, when Walker, flanked by business leaders, held a news conference at a South Anchorage warehouse. The governor is recovering from surgery for prostate cancer this week.

The loudest outcry Thursday came from proponents of the "Juneau Access" project — the proposed road that's been studied and dreamed of for more than two decades.

"Today's announcement feels like a body blow," Juneau Mayor Ken Koelsch said in a prepared statement.

The project, which had pockets of powerful political support from Juneau politicians and organized labor, would have required extensive blasting, huge retaining walls, and still would have required a short ferry to bring cars the final few miles to the road system. Annual maintenance would have been $5 million more than existing ferry service.


But even facing Alaska's huge budget deficit, Walker still gave the road serious consideration, visiting nearby communities and flying the route. Every budget item has a "strong constituency," and the Juneau road dilemma was one example of just how hard it is to cut spending, Pitney said.

The project, said economist and road opponent Gregg Erickson, may have been affordable "in a boom." But now, he added, "reality invades state decision-making."

"It's a move that's been coming a long time," Erickson said in a phone interview. "It takes a long time for these things to percolate through the political process and public imagination."

Nathaniel Herz

Anchorage-based independent journalist Nathaniel Herz has been a reporter in Alaska for nearly a decade, with stints at the Anchorage Daily News and Alaska Public Media. Read his newsletter, Northern Journal, at natherz.substack.com