In the face of a multibillion-dollar deficit, the Walker administration and state labor unions should renegotiate contract terms to lower health care costs and slow wage increases, Commonwealth North recommended in a wide-ranging budget analysis released Wednesday.
The report, released at a meeting of the nonpartisan economic policy forum in Anchorage, said the budget includes $52.7 million in wage increases this year and health insurance plans, including one dubbed the "economy plan," in which the state picks up all the cost for certain workers after employees meet a $500 deductible for an individual and a $2,000 out-of-pocket maximum. The state health care coverage is "substantially more generous than plans of other local governments and private employers," the report said.
Commonwealth North, founded by the late Alaska Govs. Wally Hickel and Bill Egan, suggested "the administration and union reopen negotiations to identify savings in salary and other benefit costs."
Jim Duncan, executive director of the Alaska State Employees Association, which represents about 8,800 state employees, responded Wednesday afternoon by saying its contract had a 1 percent increase in each of the last two years, with a 2.5 percent increase scheduled this July. He said state workers are an "easy target" but paying a competitive wage is important for the delivery of state services. He also disputed the claim that the health care plan is too generous, saying his union members are under a health trust and not the "economy" plan, which is available to some other state unions and to non-union employees.
Duncan said the union's elected leaders would no doubt consider a request from the administration to reopen a contract, but there has been no request and he can't say what would happen if there were a request.
"My personal feeling is that to ask workers to forgo increases that have not kept up with inflation is counterproductive," he said.
As for the governor, said Department of Administration Commissioner Sheldon Fisher, "everything is on the table in the conversations that the administration is having and will continue to have with union leadership. However, there are no formal proposals to reopen negotiations at this time."
In addition to the discussion of wages and benefits for state workers, other elements in the Commonwealth North report are also likely to trigger controversy and differences of opinion among Alaskans.
Among the other recommendations: an end to reserve funds, such as the $900 million set aside for the Power Cost Equalization program to subsidize electricity costs in rural Alaska; an examination of Medicaid and other formula-driven programs; returning to the 120-day legislative session from the current 90-day one, or holding more legislative budget meetings throughout the year; limiting the amount of savings that can be spent in one year; and reviewing all state programs to set priorities.
"If it is not a state responsibility, stop providing the service," Commonwealth North says in the report, titled "The State's Operating Budget: Critical Crossroads, Choices and Opportunities."
Some of the recommendations will create little controversy, such as the call to get the public more involved in budget discussions, clarify the budget process and scrutinize every program. The report calls on the governor and the Legislature to start a series of dialogues about the future.
The fiscal study group, co-chaired by Cheryl Frasca, a former budget official with the state and the Anchorage municipality, and Eric Wohlforth, a leading government bond attorney from Anchorage, began meeting in August, when oil was nearly double the price it was Wednesday. About 40 business and political leaders took part in the review. The speed with which the state's revenue system has collapsed is one reason for a recommendation to lawmakers they not pass a budget this spring to cover the entire fiscal year which starts in July.
Instead, the proposal says, lawmakers should appropriate enough to run government for about seven months, allowing maximum flexibility for the administration to find ways to cut spending.
"This extraordinary approach would include a mechanism by which the administration would report back to the Legislature next legislative session," on program changes and what would be needed to pay for the final five months of state operations.
The Alaska Constitution requires the governor to submit a 12-month fiscal year budget for the Legislature to consider. The report noted changing the scope to seven months would be difficult.
"We recognize this type of extraordinary step infringes on the Legislature's fundamental responsibility, the power of appropriation," it said.
The report does not deal with raising taxes or using the earnings of the Alaska Permanent Fund. It deals only with spending, saying revenue questions should be examined separately.
"Commonwealth North's board of directors believes that this crucial first step -- right-sizing state spending -- is a fundamental starting point for sustainable spending in the future," the report says.
The report does call for the Legislature to establish a joint ways and means committee to deal with revenue and approve a spending limit within the first two weeks of the annual session.
It outlines a series of steps for the next two years, most of which will require additional legislative meetings.
"None of this is easy, no question about it," said Frasca, a state budget director during the Murkowski administration and former budget director for the Municipality of Anchorage. "The fact is we're living beyond our means."
Regarding the pay increases and health care costs, she said the state has contracts that guarantee increases every year.
"It's only logical to look at these recurring obligations. In an era where it would be hard to find private-sector businesses where employees pay zero toward their health care costs, I think it's reasonable for the administration to talk to the unions so there might be some give and take."
"Instead of a 2.5 percent increase next year, maybe they only get a 1 percent increase next year," she said.
Regarding the $2.8 billion set aside in special reserve funds, the problem is that those expenses don't get the examination they deserve. The largest of the reserves contains $1.3 billion to help fund education in advance.
"In light of the unrestricted general fund shortfall, Alaska can no longer afford to have these set-asides. The Legislature should amend state statutes and appropriate these reserves to the general fund," the report said.
Frasca said the goal of the report is to help Alaskans "understand some of the tools that could be available to help address this challenge."
She said a lot of work will have to take place during the summer and the 90-day session doesn't leave enough time for lawmakers to face the complicated mix of issues.
"This is why a lot of what we suggested here will be interim work, because they don't have time during the limited session. This is not a part-time gig right now during this critical crossroads. They have to sit down and start talking truths, not just to themselves, but also Alaskans," she said.
The Constitution calls for a 120-day session limit, but a voter-approved measure in 2006 called for a 90-day session. Commonwealth North said lawmakers should consider following the constitutional limit or plan on more special sessions -- or both.
Wohlforth, a former trustee of the Alaska Permanent Fund and a former state revenue commissioner, said he doesn't agree with all the recommendations in the report but likes the idea of starting a discussion. He said getting the public more involved with something similar to the Conference of Alaskans undertaken a decade ago by the Murkowski administration would help.
He said there have been various efforts to increase public engagement through the years as Alaska dealt with the ups and downs of oil prices.
"Where they succeeded in part was when the governor and the Legislature were behind them," Wohlforth said. "Where they failed was because both bodies were not.
"This is a two-year process. It's foolish to think that we're going to make extraordinary institutional changes in one year," he said. "But we certainly could begin to lay the groundwork for some changes next year in the realization that we can't do it like we've been doing it."
"We may get lucky again like the happy drunk, but we may not," he said.