Capitol Report for March 23

March 23, 2020

Capitol Report

Senate Finalizes FY21 Omnibus Spending Package
On Saturday, the Senate Finance Committee amended its version of HB 205, the FY21 Operating Budget. The House has already passed its version of the budget, and the Senate has been working on modifications since March 4. Earlier this week, the committee introduced initial recommendations in a substitute bill, which incorporated a significant portion of the Governor’s FY21 Capital Budget (SB 154). Typically, the operating and capital budgets move as two separate appropriations, but given the legislature’s desire to expedite the budget process, and to conclude their business next week, the Senate chose to combine everything into HB 205.

The Committee began Saturday evening’s hearing with a somber presentation from Legislative Finance Director Pat Pitney. The economic fallout from the ongoing health crisis, driven by steep declines in both oil prices and financial markets, will have devastating consequences to the State of Alaska’s finances. The state budget already relies almost exclusively on two revenue sources - Permanent Fund Earnings (~60 percent) and oil taxes (~40 percent). Both sources are being seriously diminished by the ongoing pandemic.

Pitney’s briefing provided lawmakers with updated projections and context on the state’s current and future financial health. This is intended to help inform legislators before they make final decisions on this year’s budget, any COVID-19 related financial stimulus package and next year’s Permanent Fund Dividend. The presentation contained several startling projections. Without a serious economic recovery in the next 12-18 months, the state could be forced to make annual draws from the Permanent Fund Earnings Reserve that are substantially higher than the statutory interest income being earned by the fund. You can watch the presentation here.

Following Pitney’s presentation, the committee adopted several changes to the budget. You can watch the amendment process here. In two separate amendments, the committee added an additional $96 million in capital funding for three programs that are perennial priorities for rural Alaska:

Village Safe Water & Wastewater program ($52 m Fed/$13 m GF)
Rural Power Upgrades ($13 m Fed/$5 m GF)
NPR Impact Grants ($13 m GF)

In a third amendment, the committee added $680 mill to fund the FY21 Permanent Fund Dividend, an amount estimated to be sufficient to pay a $1,000 dividend. An amendment offered by Senator Bill Wielechowski to add a $1,000 emergency supplemental PFD to be payable in June failed on a vote of 4-to-3. This action was the first the legislature has taken to fund the FY21 dividend. The House has yet to address next year’s dividend. Governor Dunleavy has proposed a full statutory dividend of ~$3,000 next year, and this week he proposed an emergency $1,309 PFD as COVID-19 stimulus.

With the addition of dividend and these capital items, it is clear that the Senate expects this to be the final appropriation bill of this rapidly concluding legislative session. The FY21 Mental Health Budget (HB 206) has already been signed by the Governor, and the FY20 supplemental budget (HB 234) is awaiting transmittal.

With the added capital projects, HB 205 now includes 71 percent of the state funded, and 94 percent of the federally funded capital projects requested by the Governor. Total capital spending in the bill totaled $1.2 billion, $1.0 billion in federal funds and $200 million in state funding. The bill includes no capital funds for the university.

University of Alaska Budget Results
For the University of Alaska, the bill sets state funding for next year at $289.5 million unrestricted general funds (UGF), which is $12.5 million below the current year. The Governor’s budget, reflected the compact agreement, and proposed a $25 million reduction in FY21. The House accepted the $25 million reduction. The Senate intends for the university to use this additional $12.5 mill to modernize, reorganize, and to continue academic program reviews and efficiencies.

The Senate proposal splits UA’s funding into two separate appropriations - $237 million for UAF, UAA and Statewide; and $52.5 million for UAS and our community campuses. The bill includes two items of intent language, one calling on the university to limit the use of Reimbursable Service Agreements (RSA) to reallocate funds between the community campuses, and another requesting an update to the joint study published by the Alaska Center for Energy and Power (ACEP) and the Institute of Social and Economic Research (ISER) in 2011 on the potential use of small scale nuclear reactors in Alaska.

Unfortunately, the budget contains no capital funding for UA. The Senate failed to fund the $2.5 million request from the Board of Regents and supported by the Governor, for the USArray Initiative at the Alaska Earthquake Center. This is incredibly disappointing given the strong justification, available federal funding, and the bi-partisan legislative support this critical infrastructure project has received over the last two sessions. The bill also fails to provide any funding to address UA’s significant deferred maintenance needs and debt service costs, despite strong support in the Capitol for legislative funding this year.

HB 205 will be on the Senate Floor Monday for final debate and vote, before it returns to the House for a concurrence vote.

COVID-19 Response
Friday afternoon the House Finance Committee held a hearing on COVID-19 impacts to the Alaskan economy. The Senate Finance Committee held a similar hearing Saturday. John Bittner, executive director of the Alaska Small Business Development Center at UAA, participated in both hearings sharing local business perspective and discussing potential policy implications.

Yesterday, the Senate passed HB 308, which expands unemployment benefits for Alaskans in response to the coronavirus pandemic. HB 308 broadens the eligibility from 90 to 120 days, waives waiting periods, increases the weekly benefit per-dependent to $75 and makes the bill retroactive to March 1. The House is expected to concur today.

Bills We are Still Pursuing
There are two bills that we are hopeful the legislature will pass before it concludes business next week. HB 235, sponsored by Representative Wool, extends the Technical Vocational Education Program (TVEP) and HB 268, sponsored by Rep LeBon, expands the Alaska Municipal Bond Bank’s authority to permit the university to access the authority’s strong credit ratings. HB 268 is scheduled for a House floor vote today.

HB 235 was heard in Senate Finance Committee yesterday morning. The committee adopted a new version of the bill retaining the current recipients and funding percentages. However the bill only reauthorizes the program for one year, meaning legislators will be revisiting reauthorization of the TVEP Program next session.