Budget-Wrangling Season in the People’s House

The House version of the operating budget bill is sitting at approximately $12.3 billion (including the PFD).

Where do we get the revenue to cover those costs? $3.7 billion from the 5% percent-of-market (POMV) draw from the Permanent Fund, $2.8 billion from oil and other taxes, and the remaining $5.8 billion in revenue is made up of federal funding ($3.5 billion) with the rest primarily coming from pots of funds established in the past (tied to statutes) and various user-type fees.

What will remain in savings with this spending plan? A.) $2.2 billion uncommitted in the Earnings Reserves Account (ERA) of the Permanent Fund, and B.) $2.6 billion in our Constitutional Budget Reserve (CBR).

One significant budget-related factoid I think it’s important for you to know: roughly $3 billion of the $12.3 billion operating budget is allocated for personnel costs for about 21,000 employees. That $3 billion comprises half of our state’s discretionary funds (UGF or unrestricted general funds).

Already in flux, a plan to gavel out of the 33rd Legislature on May 14 points to an exchange of the operating and capital budget bills between the House and the Senate later this week – on Friday, April 12, with the budget conference committee process beginning about 3 weeks later, on May 6. With the House setting a higher PFD amount than the Senate Majority favors, the agreement on the size of the capital budget is already a sticking point.

The House Finance Committee’s proposed PFD is 30% ($1.1 billion) of the POMV draw from the Permanent Fund and with the energy rebate (estimated $500 million) is at about $2300/PFD. The Senate Majority prefers a 25% POMV ($.9 billion) draw for an approximate $1600 PFD with the rebate included. (Note that a 50% POMV draw – $1.8 billion – for a PFD with the rebate would net a $2900 PFD. A statutory PFD based on the formula relied upon from 1982 to 2015 would require 63% of the POMV draw – $2.3 billion – and with the energy rebate be a $3700 PFD.)

Because the courts decreed in 2017 that the legislature is not bound to the PFD formula in statute, the PFD has been a moving target and a point of contention for the legislature in recent years. The court ruling essentially means that funds that before would have only going to the PFD are now up for grabs for other spending – and oh, is the battle for those dollars is intense.

Crafting and passing a budget has never been an easy task for 60 elected officials in Juneau, all with different ideas. But in recent years since the court ruling, it’s absolutely ridiculous. With multiple tug-of-wars over hundreds of millions of dollars in play, settling on what dollars will go where in a timely manner is not occurring. I am a huge supporter of settling the PFD once and for all. Not only will it prevent chaos but it will give us fiscal certainty and a better ability to prepare and plan for both current and future budgets

Fortunately, bridges in Alaska aren’t collapsing but unfortunately, because Alaska continues to be a top per capita spender on its operating budget, the result is we are at the low end on capital spending.

We are not investing in infrastructure like we should be.

It is incredibly, incredibly frustrating that our operating budget has grown to about $12.3 billion (again, about $3.5 billion in federal funds, the rest state funds) while our capital budget will likely only be around $3.5 billion (about $3 billion of that in federal funds).

In other words, we’re spending nearly $8 billion in state funds on operations and only about $500 million or so in state funds on infrastructure. In a relatively young state, an extremely large state with little infrastructure, our operations spending versus our capital spending is off-track.

Our state spending imbalance and problem points to the needed fix to our existing but useless constitutional spending cap. We need to limit/control operational spending and ensure adequate funding for capital spending; a constitutional remedy would get us there. Note too that this remedy would also prevent runaway taxes. Infrastructure will help grow our economy to help keep our taxes low. State operations growth will do the opposite.

Until we settle the PFD once and for all – such as through HJR 7 – and until we fix the broken and meaningless spending cap in our state constitution – such as through SJR 4 – to control our operating budget, our ability to fund needed infrastructure to grow our economy is very limited.