Since the second regular session of Alaska’s 31st State Legislature began on Jan. 21, lawmakers representing the central Kenai Peninsula have had their attention focused on one thing: finding a long-term solution to the state’s ongoing budget concerns.
In interviews last week, Rep. Gary Knopp, R-Soldotna; Rep. Ben Carpenter, R-Nikiski; and Sen. Peter Micciche, R-Kenai/Soldotna, shared their visions for Alaska’s fiscal future as well as how they are approaching the budget discussions this time around.
Gov. Mike Dunleavy’s proposed state budget for fiscal year 2021 shows a deficit of about $1.5 billion between anticipated revenue and expenditures. One of the proposals to address this shortfall would draw the difference from the state’s Constitutional Budget Reserve, which acts as the state’s last remaining savings account and currently holds about $2.16 billion, according to the state’s Department of Revenue. All three peninsula lawmakers have said that they are against this proposal.
Micciche said drawing from the CBR would be the easy way out of the problem, but he would rather look at reducing current spending on state services and passing a constitutional limit on state spending as a way to prevent future legislatures from being forced to address this issue in the future.
“Mathematically that (drawing from the CBR) seems like the easiest way to go, but it’s not supported by Alaskans and certainly not supported by the Alaskans in District O,” Micciche said. “So I think it’s time to make the tough choices. Get the reductions where we can. Pass a spending limit, which is absolutely imperative to not get ourselves in this situation again, and look at other options. I know in my recent survey — of the 900 people that have taken it — they seem interested in a balanced approach that does not automatically go after dramatically reducing the PFD.”
Micciche posted an online survey to gauge the opinions of his constituents on various issues, including the budget. Micciche said that some of the respondents have expressed support for a temporary state sales tax as a way to boost the state’s revenue, but he has seen no support for an income tax and little support for reducing the payout of the Alaska Permanent Fund dividend.
Micciche’s survey is not anonymous and asks for the respondents’ name and address in order to ensure they are a resident of District O and are accurately tabulated.
“It’s as close to a scientific poll as possible by identifying the individuals,” Micciche said. “For folks that think it should be anonymous, I can tell you that with anonymous polls that the data has no value because special interest groups will pile on it and really skew the results.”
Micciche said he plans to leave the survey open until Wednesday night and will release the results as soon as they are available. A link to the survey is available on Micciche’s Facebook Page.
Micciche said the spending cuts he has in mind would focus on reducing administrative costs in a way that does not impact the quality of services that Alaska received. He used the Department of Transportation’s decision to close the Silvertip Maintenance Station as an example of the wrong kind of reduction.
“As we saw last year with the cuts, what they do first in many of these departments is respond in a way that hits the public heart, like what we saw with the Silvertip Station and the maintenance on the highway,” Micciche said. “That’s not where cuts should begin.”
Micciche said he recognizes that the budget likely cannot be balanced on spending cuts alone, but added that any additional taxes should affect visitors and nonresidents as much as they do Alaskan residents.
“I think those are going to be the two sides,” Micciche said. “The side that wants to take the easy way out, in their perspective, to simply reduce the dividend and balance the budget on only the backs of Alaskans, or those of us that want to spread out the impacts.”
Knopp also stressed the importance of keeping “downward pressure” on the budget and looking for spending cuts where possible.
“Even to flat fund without (accounting for) inflation is probably going to cost us a little more than last year’s budget did,” Knopp said. “We’re trying to keep it as flat as we can, and that’s my No. 1 priority.”
Knopp said that some legislators would like to start putting funds back into the budget where cuts had previously been made, but he argued that the state is not ready to start increasing funding anywhere until additional revenue is found.
A new fiscal reality
Carpenter said he would also continue to support a spending cap. He said drawing $1.5 billion from the CBR in order to solve this year’s budget deficit would be a “Band-Aid” solution that does not address the long-term fiscal reality of the state.
“I think if it’s just one and a half billion dollars to settle this budget deficit this year, then we’ve lost sight of what’s fiscally responsible for the future, because we’re going to have to do it again next year,” Carpenter said. “Eventually, we’ll reach a point where we don’t have a PFD check, we’ve run out of money in the earnings reserve account, and we don’t have enough money in the CBR. And yet we still have a state government that’s growing, and now we will have no alternative but to increase taxes somewhere else. So that’s where we’re at.”
Carpenter said any long-term solution will have to take into account that revenue from oil production will no longer be the state’s major source of revenue.
“We have to recognize that we are in a transition period in how we do business,” Carpenter said. “Our revenue from oil is being surpassed by our revenue from investment earnings … So we need to realize that the current system that we have for dealing with the permanent fund earnings is not adequate for where we’re headed.”
Carpenter said he is working with both the executive branch and his fellow legislators to come up with a solution in that vein, but said that it was premature to discuss specifics.
“Our financial paradigm needs to reflect our current and future financial reality, where oil money is no longer the main driving force in our state budget,” Carpenter said. “The required solution is more than balancing this year’s budget with available resources. We need a new system.”
Finding middle ground
The governor’s proposed budget is currently going through subcommittees within the House Finance Committee, and Knopp expects those subcommittees to finish their work in the middle of February, around the 18th. If all goes according to plan, Knopp said, the budget will be up for discussion on the House Floor at the beginning of March. Knopp and Carpenter are both members of the House Finance Committee. Knopp said that the House Majority Coalition has laid out a timetable for completing the budget within the 90 days of the special session. Last year, the Legislature had to convene in two special sessions in order to finalize the state’s budget and issues surrounding the PFD.
“This year was not the same,” Knopp said. “We were organized, hit the ground running, and the governor rolled out a budget that was a good conversation piece, a starting point, and so that got us off of square one.”
Micciche said that the Senate Majority also has a timetable for finishing within the 90 days, but noted that any schedule should take into account pushback from legislators on the other side of the aisle.
“Some of those people that say they have a timetable, that timetable is dependent on you relenting and agreeing with every choice that they make, and both bodies have to be somewhat flexible,” Micciche said. “That means valuing the opinions of conservatives, those in the middle, and those from more liberal districts to come up with a plan that does not only impact Alaskans.”