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In Juneau session, budget crisis could spur cooperation, or magnify disputes

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published January 17, 2015

JUNEAU -- Lawmakers will begin a new session of the Alaska Legislature on Tuesday facing a stark fiscal fact: The budget many of them authorized last year allowed the state to spend more than twice as much money as it took in.

The state's $6.1 billion budget is projected to draw $3.5 billion from Alaska's savings by the end of the fiscal year in June, with at least $3 billion more needed next year unless Gov. Bill Walker and state legislators can find ways to cut the deficit.

At that rate, the state's reserve accounts, flush with cash from years of high oil prices, will be gone by 2018.

Revenues from North Slope oil production pay for about 90 percent of the state's discretionary spending, and a recent price crash means that Walker and legislators face an uncomfortable few months in Juneau as they ponder short-term and long-term fixes for Alaska's budget imbalance -- with politically unpalatable choices that could ultimately include new taxes, massive spending cuts or even siphoning money away from the Alaska Permanent Fund.

And after two years of cooperation between the Legislature and Walker's predecessor, Sean Parnell, lawmakers now have to work with Walker, who was elected in November after years of attacking Parnell and the plans of legislative leaders for a pair of natural gas pipeline projects.

What's unclear is whether the state's dire fiscal predicament will shrink the distance between the Legislature and Walker's new administration -- or whether it will amplify their differences.

In the days leading up to the session's start, legislative leaders said they were staying open minded.

"You're going to feel each other out for a little while and figure out, where's the administration going, what are their goals and what are our goals, and can we make it work?" said Rep. Mike Chenault, R-Nikiski, the House speaker. He added: "I don't have to like somebody to get work done. All I have to do is be able to work with them."

Chenault is among the biggest boosters of the smaller of the two gas pipeline projects, which would bring natural gas from the North Slope to an existing distribution system near Cook Inlet.

Walker dismissed that project during his campaign, saying it was too small to take advantage of economies of scale and move large volumes of gas for export. And he's already fired members from the board overseeing the state's pipeline building efforts.

He also hired a chief of staff, former state legislator Jim Whitaker, who's publicly criticized Chenault and other Republican leaders as being too cozy with the oil industry.

Both Whitaker and Walker are longtime Republicans, but neither belongs to the state party's establishment.

Walker dropped his party registration to pick up the endorsement of the Alaska Democratic Party in his gubernatorial race last year, in which he unseated Parnell. Parnell's campaign manager -- and one of Walker's primary antagonists -- was Tom Wright, who was on hiatus from his job as Chenault's chief of staff. Wright is back in Chenault's office now.

Nonetheless, Walker said legislative leaders have been "gracious" since his victory, and maintained that his election as an independent will give him the ability to cross party lines and work with all sides.

"One thing about low oil prices is it tends to bring everybody to the table," Walker said in an interview. "Of course we won't agree on everything, but I think if there's a process to disagree agreeably, (that) would be something I'm looking forward to."

Parnell, a Republican, left Walker with a lean budget proposal that would slice $200 million from state operations spending. And Walker has already proposed huge reductions to the capital budget, which would draw just $100 million from state accounts compared to $600 million the previous year.

But those plans still leave the state spending $5.4 billion next year, when it's expected to get just $2.2 billion in unrestricted revenues -- and that's if oil averages $66 a barrel for the year, an average significantly above last month's prices.

Among the most pressing questions faced by Walker and the Legislature during the new session: How much should the $3.2 billion gap be closed? What steps should be taken to close it? And how much time does the state have until its savings accounts, projected to hold $9.6 billion at the end of June, are depleted?

Some economists and fiscal experts argue that the state's financial problems are structural and say the only realistic way to balance the budget is to create new forms of revenue, like instituting new taxes or pulling money from the $52 billion Alaska Permanent Fund. But legislators are wary of those options, which are likely to draw ire from their constituents.

"I don't think we'll discuss that this year. The reason being that it's easy to lose sight of what you need to do, which is the reductions, when you're looking at how can we raise more money," said Sen. Kevin Meyer, R-Anchorage, the Senate president. "People will say, 'Yeah, we support additional revenue. But tax the other guy.' "

Meyer said it's not yet clear how much the Legislature will try to cut from the deficit, and one determining factor will be an updated budget proposal that Walker is required to release by Feb. 18. But as a ballpark figure, Meyer suggested a 20 percent reduction in the deficit as a "doable amount," which, repeated annually, could wipe out the $3 billion budget gap over several years.

"But even 20 percent or 25 percent is a pretty big number," Meyer said. "And people are going to realize it."

The deficit may give legislative leaders some leverage when it comes to Walker's goal of expanding Medicaid, the public health care program for the poor and disabled. Extending Medicaid coverage to an additional 40,000 people -- a move that would be entirely federally funded through 2016, phasing down to 90 percent federally funded by 2020 -- was a central plank of Walker's campaign. But Republicans in the Legislature have already expressed skepticism, citing concerns about expanding state spending.

The state's worsening fiscal position also signals a shift for the groups and individuals that typically make pilgrimages to Juneau each year seeking money for projects and priorities. Instead of lobbying for new requests, they'll largely be playing defense against reductions and policy changes.

Proposed cuts are likely to face vocal opposition from constituencies and advocates they affect, who are likely to argue that agency budgets have already been trimmed too far.

"People are talking about, 'Oh, we're going to have to tighten our belts and really take these cuts,' " said Alison Arians, a member of the public education advocacy group Great Alaska Schools. But, she added: "There's no more fat, you know? We're down to teachers, and it's dire. It's a crisis."

John Eberhart, the Fairbanks mayor, played down his own expectations for the legislative session in which cities like his typically seek money for big construction projects.

Fairbanks is asking for $20 million for capital projects this year -- and it had been hoping to get a larger share of money after last year, when a big portion of the state cash granted to the area went to a heat and power plant at the University of Alaska Fairbanks.

"Then, of course, oil started dropping like a rocket," Eberhart said. "If we got some legislative request money, that's great. But personally, I'm not expecting it."

Eberhart said the city aims to maintain a program called municipal revenue sharing, which allocates $1.6 million annually in state money to city accounts. Meyer has already said it could be cut.

And Eberhart wants to keep the state from demanding higher payments from cities to Alaska's retirement system -- which he said would cost Fairbanks $95,000 for every 1 percent increase.

Eberhart said he'll also be watching to see how the Legislature handles the regulation of marijuana, which voters legalized through a ballot initiative in the November election. And one open question for the session is how much energy the lawmakers will dedicate to social issues and other topics peripheral to the state's financial position.

Grappling with social issues doesn't cost money, and legislators have already filed measures to ban discrimination based on sexual orientation and repeal the state's constitutional ban against same-sex marriage.

Conservative advocacy group Alaska Family Action has its own ambitious agenda, which includes preventing abortion providers from teaching sex education in schools, banning the coverage of elective abortions by state-licensed insurance plans, and requiring public libraries to install online filters to prevent pornography from showing up on computers.

But action on all those issues will require time, effort and political capital, which it's not clear legislators, or Walker, will want to spend. Nonetheless, Jim Minnery, Alaska Family Action's president, said he was undeterred.

"The reality is that we're always sort of the ugly stepchild," Minnery said. "You never know, because there are interesting dynamics that play out over the course of 90 days. And there are all sorts of games that are played down there."

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