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Alaska Legislature

The Alaska Legislature passed a budget and avoided a government shutdown. What happens now?

The Alaska State Capitol in Juneau. (Marc Lester / Alaska Dispatch News)

It took more than five months, but the long-gridlocked Alaska Legislature finally agreed on a nearly $9 billion operating budget late Thursday, averting a government shutdown.

The budget came with winners and losers, and it still needs Gov. Bill Walker's signature. But it's a one-year spending plan and doesn't close a multibillion-dollar gap between revenue and spending for the long term. 

Here's a quick rundown on what happened in Juneau and what's to come.

How did the budget deal come together?

The House and Senate had passed separate and very different operating budget proposals. The Republican-led Senate proposed sharp cuts to the University of Alaska, public schools and the Alaska Pioneer Homes. The House's largely Democratic-majority coalition opposed the cuts. On top of that, the Senate and House were at an impasse on a long-term fix for the state's worsening multibillion-dollar budget gap, the result of low oil prices and oil production far below the peak.

Lawmakers focused on the discretionary spending part of the budget because that is how the state's persistent budget deficit is measured. They ended up with $4.1 billion in that unrestricted general fund.

Gov. Bill Walker had directed lawmakers to solve the overall budget gap as well as settle on a budget for the coming year. Legislative leaders appointed three House members and three Senate members to a special conference committee in May and charged them with resolving the differences in the chambers' proposed operating budgets. When that didn't happen, Walker called a special session, which ended on June 16 without a budget agreement.

Walker immediately called a second special session and, after a push from Alaska businesses and the Senate majority, narrowed the focus: Just pass a one-year operating budget so the government doesn't shut down on July 1. In meetings over three days, the conference committee rolled out pieces of its budget deal. The budget agreement was quickly approved by the House and the Senate on Thursday night.

How did lawmakers close that big budget gap?

Lawmakers plan to draw $2.4 billion out of the rapidly disappearing state savings account with a high bar for spending: approval of three-quarters of members of both the House and Senate. At that rate of withdrawal, the savings account — the Constitutional Budget Reserve — will be drained after another year. Lawmakers say they don't want that to happen.

Lawmakers typically turn to the constitutional reserve, funded in part with tax settlements, to close budget gaps. But for the long haul, the separate Permanent Fund earnings reserve likely will be part of the answer to an overall budget fix.

Lawmakers also shifted around some money in the budget, which tends to make cuts look bigger than they are, and counted on money that may not materialize. For instance, the budget includes a projected $35 million in increased gas taxes. But Walker's bill to triple the state gas tax didn't pass. The gas tax money also now comes out of a different fund, not the one used to measure the deficit.

Who are the winners and losers in this budget?

The University of Alaska lost $8 million in general funds, or about 2.5 percent, but it avoided the nearly $22 million cut that had been proposed by the Senate.

Public schools — kindergarten through 12th grade — received the same amount of money as the current fiscal year, not the 5.7 percent reduction proposed by the Senate. That is considered a win for schools but still means cuts, since flat funding does not keep up with rising costs like health insurance. The Anchorage School District, for instance, is eliminating 99 full-time teacher positions to partially close a $15 million gap.

The state Office of Children's Services is a winner, with 31 new positions for front-line caseworkers. State money for Medicaid is being cut by nearly $16 million. Lower rates paid by the federal-state health insurance program to doctors and other providers are expected to help absorb that.

For the first time, the Legislature set the amount of the Permanent Fund dividend, settling on a figure of $1,100 per Alaskan — about half of what it would be if the state followed a formula established in law. Walker veered off that course last year when he vetoed more than half of the dividend funding. Dividends were ultimately paid out at $1,022 per Alaskan.

OK, so the Legislature agreed on a budget. What happens now?

The special session continues until July 16, though most lawmakers say they are done for now. They were packing up Friday for their home districts. Legislative leaders wanted to adjourn but Walker told them to keep working, said Sen. Lyman Hoffman, a Democrat from Bethel who is part of the Republican majority and one of the architects of the budget deal. That means they will hold what's known as technical floor sessions every few days with only a few members.

The work isn't yet finished.

Lawmakers have yet to pass a capital budget, but say they will get to that eventually, maybe in another special session. Capital projects such as roads and buildings won't shut down if that budget isn't approved by July 1, said Hoffman, who co-chairs the Senate Finance Committee. The operating budget now goes to Walker, who can veto or lower any of the spending particulars. Last year, Walker vetoed more than $1 billion in spending, most of it for dividends.

Late Thursday night, Walker added one more item of unfinished business to the Legislature's agenda for the special session. Some lawmakers said they expected it to be the capital budget, but in fact Walker said he wanted them to address the state's "unsustainable oil and gas tax credit system" through House Bill 111. The bill could end payments of cash tax credits to oil companies, though about $1 billion from the past is still owed.

Both chambers want to end those tax breaks. But the House also wants to increase the effective tax rate on oil production, something the Senate hasn't signed onto.

Sen. Cathy Giessel, R-Anchorage and the Senate chair of the panel trying to work out a solution on tax credits, said an agreement on credits is possible. Doing what the House proposed would require more time and work with consultants, she said. Giessel said she planned to figure out the next steps with the House chair of the conference committee, Rep. Geran Tarr, D-Anchorage. Another conference committee member, Rep. Andy Josephson, D-Anchorage, said the restructuring of the oil production tax was a pillar of the House's long-term fiscal plan.

The Legislature wrote into the budget that it intended to kill off the state oil and gas tax credit program by June 30, 2018, but that sort of language isn't binding.

Did the Legislature do anything else during its second special session?

The House gave final approval to a bill Thursday night that aims to combat opioid abuse. The Senate passed it earlier. The governor unveiled the bill earlier this year and added it to the special session agenda Thursday morning. The bill includes new education requirements for medical workers, limits on prescriptions and more aggressive monitoring.

So, will the Legislature ever figure out a long-term plan to solve the state budget?

Closing the gap between revenue and spending has been before the Legislature for decades. The pressure has never been more intense because of the sharp decline in oil revenues and the depletion of savings. The House, Senate and governor all have agreed part of the solution will be the use of Permanent Fund earnings, while still paying out dividends to Alaskans, Hoffman said. But there's disagreement on how much should go to state services versus dividends, he said. The House and governor also were pushing for an overall solution with new revenue to fill the remaining gap. The Senate argued to take things one step at a time. Many conservatives want more cuts before any new revenue sources are in place.

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