Operating Budget and What's Next
Dear Friends and Neighbors,
Just after I wrote last week's enews, late last Thursday evening, with just a week before the government would have shutdown, the legislature reached a compromise on the operating budget. While this relieves the immediate pressure of a looming shutdown, measures to enact a fiscal plan were not passed so we have not completed our work for this year.
When I wrote last week it seemed we were on the verge of a compromise, but things can change quickly so until the votes are cast I'm always a bit cautious about the outcome. In the end we were able to prevent the devastating $69 million cut to public education and secure a higher dividend of $1100, but the University took another $8 million cut, there was a $15 million cut to Medicaid, and some payments for oil subsidies were included. A compromise. I'm concerned about these cuts, but in the end we needed to compromise and pass the budget. I've updated the table below with final budget numbers.
House Bill 111 Update
The current Special Session was limited to the operating budget, but once the operating budget passed Governor Walker added House Bill 111, the oil and gas tax reform bill, to the agenda. At this time the legislature has hired consultants to help us answer questions about reform measures so the work on this will be ongoing. We did put language in the operating budget signaling the cash credit program will end on January 1, 2018 so we have moved forward on eliminating cash credits, which is something everyone agrees needs to happen. The unanswered question at this time is: What will the state use to replace cash credits? So far what has been proposed is allowing "carry forward annual losses" allowing companies to recover investment costs. These losses equate to less revenue for the state of Alaska so my concern is the same as the concern with the cash credit program: What can the state afford? Whether it's paid out in checks to oil companies or lost revenue coming to the state from oil companies, we have to make sure we can afford whatever incentives are offered. The major problem with cash credits is we can't afford the cost to the state. It's less about the mechanism (paying a cash credit or a carry forward annual loss) and more about the overall burden to the state. What we've said is we don't want to just change the name (from cash credits to carry forward annual losses) and pay the same (cost for cash credits is the same as cost for carry forward annual losses in Senate bill, House version addresses this and increases revenue to the state by several hundred million dollars). I'm optimistic that if we keep working we will craft a compromise bill everyone can support.
Fiscal Plan Future?
We need to pass a Capital Budget and then the remaining items for the fiscal plan are House Bill 111 (or another bill to reform our broken oil and gas tax system), SB 26 (or another bill addressing the POMV approach to managing the Permanent Fund), and broad based revenue (could be any measure currently under consideration by the legislature or a new bill).
House Plan vs. Senate Plan: AKHere2Stay or DrainNPray?
ICYMI from a previous enews: Speaking of plans, recently we added a page to our website comparing the House Plan with the Senate Plan. Please take a look and see which one works best for you. We’re calling the Senate Plan the “DrainNPray” plan because it drains our savings accounts and relies on higher oil prices in the future to balance the budget, something we know we have no control over at all and what got us in this mess in the first place. We call the House Plan the “AKHere2Stay” plan because we love Alaska and want to fix the economy, give the stability businesses need for investment, stop the job losses, and start moving forward in the state we love. There’s also a link to print out the comparison and if you are talking with family, friends, or co-workers about what’s happening in the legislature this might be helpful.
I hope you're enjoying summer! It's always great to hear from neighbors. Thanks again for all your emails, words of support, and ongoing advice on our fiscal situation.