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Alaska lawmakers are following a budget path that’s ended in gridlock before. Will it be different this time?

JUNEAU — The Alaska Legislature's budget process for the past two years has ended in gridlock and partisan sniping, then long overtime sessions.

This year? Lawmakers seem to be following the same budget path.

Halfway through the Legislature's 90-day session, the Republican-led Senate and the largely Democratic House majority are still drifting apart, with senators pushing for a spending cap and steep budget cuts as the House advances an income tax proposal and increased oil and gas taxes.

So why should this year's outcome be any different?

In asserting that it will be, legislative leaders point to changes outside the budget process — from the new players in power in Juneau, to the public's growing awareness of Alaska's deficit crisis and the state's rapidly draining savings accounts.

"Clearly, there's more momentum being built around the state, being generated, in terms of asking the Legislature to take decisive action this session," House Speaker Bryce Edgmon, D-Dillingham, said at a news conference this week. "We want to capitalize on that."

The speaker of the House, Rep. Bryce Edgmon, D-Dillingham, in January. (Marc Lester / Alaska Dispatch News)
The speaker of the House, Rep. Bryce Edgmon, D-Dillingham, in January. (Marc Lester / Alaska Dispatch News)

Many Juneau veterans are nonetheless skeptical of lawmakers' chances of gaveling out on time, and even Edgmon hedged when describing his coalition's intent to finish its work in 90 days.

"Honestly, if it takes going over a little bit in order to do the right thing for the future of Alaska, personally I'm prepared to do it," he said.

Alaska's Constitution and the partisan makeup of the House and Senate have helped stymie lawmakers' attempts at passing on-time budgets and deficit-reduction legislation in the past two years.

The Legislature worked until mid-June in 2015, ultimately relocating to Anchorage and finishing nearly two months late.

The Republican majorities in both chambers got mired in negotiations with the House Democratic minority over cracking open a state savings account, the Constitutional Budget Reserve. That reserve requires three-fourths approval of each chamber to access, so the GOP majorities needed House Democratic minority votes.

Last year, budget negotiations and debates over legislation to restructure the $57 billion Alaska Permanent Fund kept lawmakers in Juneau well into cruise-ship season. A special session called by Gov. Bill Walker ended July 18 without agreement on broad financial reforms, except for once again spending the Constitutional Budget Reserve.

This year, lawmakers appear to be roughly on pace to pass initial budget proposals out of the House and Senate.

They also have deficit-reduction plans on parallel tracks in each chamber, but the House and Senate versions don't match up. The differences between them will ultimately be resolved in negotiations between leaders — just like the past two years.

"You come together, pass it to the governor, and the governor has to sign it," Homer Republican Rep. Paul Seaton, co-chair of the House Finance Committee, said in an interview. "The process is the process."

Rep. Paul Seaton, R-Homer, co-chairs the House Finance Committee this session. (Marc Lester / Alaska Dispatch News)
Rep. Paul Seaton, R-Homer, co-chairs the House Finance Committee this session. (Marc Lester / Alaska Dispatch News)

He conceded that negotiations with the Senate would be "interesting."

But legislative leaders argue circumstances this year have changed in ways that could prod them to finish with something other than a fight over the remaining dollars in the budget reserve, which has roughly two years of cash left at current spending levels.

Among the factors are Alaska's ongoing recession and the sharp state spending cuts enacted over the past two years, which lawmakers say have gotten constituents' attention.

"Just this morning, I had a woman from the 4-H (Club)," Rep. Adam Wool, D-Fairbanks, said in an interview, referring to the farm-youth development organization. "She goes, 'Oh, by the way, I live in your district. And oh, by the way, tax me.' I mean, people want it."

House majority members also point to their new coalition, which formed in November with an organizing principle of fixing the deficit. Last year's Republican-led House majority fractured in its final months in Juneau, with members split over whether to restructure the Permanent Fund and scale back cash subsidies for oil companies.

This year's legislative leaders in both chambers have acknowledged the necessity of using some of the fund's investment earnings to help pay for government spending — even though that will likely mean smaller dividend checks.

"If you ask them quietly in the halls, all 60 legislators know it needs to pass," Senate Majority Leader Peter Micciche, R-Soldotna, said at a news conference this week.

Soldotna Republican Sen. Peter Micciche in the Capitol in January. (Marc Lester / Alaska Dispatch News)
Soldotna Republican Sen. Peter Micciche in the Capitol in January. (Marc Lester / Alaska Dispatch News)

One huge break from the past two years could be finding a way to cover the deficit without using the Constitutional Budget Reserve account at all. That would remove the need for a three-fourths vote in the House and Senate — and this time, in a major turnabout, avoid complex negotiations with the House Republican minority.

The House Finance Committee made a first step in that direction this week by giving initial approval to a proposal from Seaton, the committee's co-chair, to spend money from the Permanent Fund's investment earnings instead of the budget reserve account.

Seaton's proposal would allow the 22-member coalition to pass a budget without votes from any of the 18 members of the House Republican minority. And it would transform what could otherwise be a thorny, three-way end-of-session negotiation to one between the House and Senate majorities alone.

"We're passing a fully funded budget, and that gives us the ability to get to work on a fiscal plan," Seaton said.

Both House and Senate leaders say they're also willing to make new concessions and compromises. House Democrats on the finance committee broke with their long-standing defense of public education by advancing a sharp proposed cut to the state assistance program for school construction loans.

"I think we're willing to cut where we wouldn't have cut," said Wool, the House Democrat from Fairbanks. And, referring to the Senate, he added: "And they should be willing to have revenue where they wouldn't have had revenue."

But even if some things have changed over the past two years, lawmakers still must bridge big ideological divides before they can agree on a deficit-reduction plan.

Senate Republicans have said they'd be comfortable leaving Juneau this year with a partial fix to the $3 billion deficit — one that relies primarily on a restructured Permanent Fund and some $300 million in budget cuts.

The latest proposal from Senate leadership would use the fund's investment earnings to slice the deficit to $900 million next year while instituting a spending cap to try to limit the growth of state government.

House majority members, meanwhile, have proposed minimal reductions to state agency spending beyond those already in Walker's budget.

And they argue a deficit-reduction plan relying on the fund alone for new revenue would be unfair, since cutting PFDs would have a bigger impact on poor Alaskans.

Those ideas are embodied in the coalition's income tax proposal, which it's advancing as part of its legislation to restructure the fund.

Unlike the House's proposal for the Permanent Fund, the income tax would take more money from high-income than low-income Alaskans.

And the House majority has a separate plan for oil-tax increases.

Neither of those tax proposals is viewed favorably by Senate Republicans.

"There's this 90 percent solution that tells the world we have essentially dealt with our fiscal problem," Micciche said, referring to the fund-restructuring proposals. "Then you add the interest from the House majority about taxes and other things, and that comes coupled with deep cuts from the Senate — and suddenly everyone is having a very difficult time getting along."

The differences between the two chambers will likely keep lawmakers in Juneau beyond 90 days, said Chris Clark, a veteran Capitol aide who's worked for lawmakers of both parties and former Gov. Sarah Palin.

Because the 90-day limit is a law — set in a 2006 citizens initiative — and the Legislature writes laws, it can keep working until the hard constitutional deadline of 121 days.

"We will likely go to 121 days because it takes a while to knit the votes together for a plan," Clark said.

But Clark added he was confident lawmakers would ultimately reach a compromise.

The urgency of the needed budget reforms makes 2017 the best chance for the Legislature to reach a deal, Clark argued, since 2018 is an election year — in which legislators have typically avoided tough decisions.

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