State budget cuts are beginning to hit home, in terms of jobs and economic impact.
Office of Management and Budget Director Pat Pitney said state employee numbers have dropped by 1,700 in the last two years and the total will grow by another 400 in the next 12 months.
So far Anchorage and Juneau are feeling the brunt of the reductions, with both communities down about 500 state workers each, Pitney said at a Commonwealth North meeting July 22.
Commonwealth North is an Anchorage-based public policy group.
With the state Legislature’s business finished for at least the year so far, after a regular session and two special sessions, Pitney is starting a round of presentations to community groups to explain the state’s financial situation.
Her talk at Commonwealth North was the first of these, she said.
Two years ago there were 26,500 workers on the state’s payroll, Pitney said.
“This is now down to 24,800. By this time next year the number will be 24,400. These are actual people, not positions,” she said.
Employees are notified several months in advance that their positions are being eliminated in an upcoming budget, and typically most that are affected have lined up other jobs by the start of the budget year, and some retire if they can, she said.
Within the public employee unions workers have “bumping rights,” which means they can, in certain cases, take a job filled by another employee with less seniority.
Largely because of all that the state had to issue only 70 “pink slips,” or actual terminations, this year. The state administration also initiated a hiring freeze in January, Pitney reminded Commonwealth North.
Fewer employees is only part of the overall picture on a budget that is being rapidly ratcheted down because of a sharp drop in oil revenues.
Overall state undesignated general fund spending is at about $4.3 billion for fiscal year 2017. That compares with $5.3 billion in fiscal year 2016. State fiscal years run from July 1 to June 30.
Pitney said the administration had a “target” for current fiscal year spending of about $4.7 billion, but that also assumed the Legislature would enact fiscal reforms and new revenue proposals made by Gov. Bill Walker.
Legislators did none of those, and opted instead to reduce spending $400 million below the administration’s target number, which itself was $600 million below the previous year outlay.
The comparisons are made of undesignated general funds, or UGF spending, which is the most common, but not the only way, of looking at state spending. Undesignated funds are those where the Legislature has total discretion in appropriation.
Another category, “designated” general funds, are expenditures for programs where the outlay is required by state statute, usually a formula of some kind, and where the Legislature has no discretion short of changing the statute that governs the formula
Cheryl Frasca, a former state budget director and co-chair of Commonwealth North’s fiscal task force, pointed out that getting a total picture of state spending requires looking at two other categories of state spending, one being “designated” general funds and also “other state funds”.
In fiscal year 2016 the Designated General Fund spending totaled $941 million, and in 2017 it totals $1.09 billion.
The other category — “other state funds” — typically reflect expenditures that are supported by designated revenues, such as University of Alaska student tuition.
In fiscal year 2016 this category totaled $641 million and increased to $735 million in 2017.
The point Frasca makes is that legislators will often change program funding sources around so that they fall under one of these other categories, and which then makes the UGF spending total smaller. Because the UGF spend is what the public usually looks at it’s a kind of sleight-of-hand, Frasca has said.
That said, the overall reductions are still significant. Pitney told the Commonwealth North group that the expected 2017 deficit, combined with deficits from 2016 and 2015, will reduce the state’s main cash reserve, the Constitutional Budget Reserve, to $3.3 billion by the end of the current fiscal year next June 30.
Had the governor not wielded a big knife in making budget vetoes on June 29 — vetoing $1.3 billion in spending including $666 million from the Permanent Fund Dividend appropriation — the drawdown on the reserve fund would have been greater, with $2.5 billion left in the CBR by next June 30.
As it is, the funds left in the CBR are barely enough to pay for one more year of a large deficit, assuming no increase in spending or improvements in revenues, she said.
That amount is too thin, she said.
“Prudence dictates that we keep about $2 billion on hand as a cash reserve, or about six months’ operating money,” she told Commonwealth North members.
However, the administration is not considering the funds in the Permanent Fund’s Earnings Reserve account as “reserves” in the same sense.
This account holds the accumulated income from the Permanent Fund, mainly income not spent for the Permanent Fund Dividend or the traditional inflation-proofing payment to the principal of the Fund.
It holds about $7 billion now.
It isn’t counted as reserves mainly because funds in the account would be a key part of the governor’s proposed fiscal restructuring of the Permanent Fund to an endowment, where some earnings are used annually to support the state budget.
Eric Wolforth, a former state Revenue commissioner and a Permanent Fund trustee, said the Earnings Reserve should be considered as “reserves” against future budget needs because there is no assurance the Legislature will approve the governor’s restructuring.
In that light, Wohlforth also said the Earnings Reserve should be placed in short-term assets rather than invested long-term like funds in the principal of the Permanent Fund.
“This (the Earnings Reserve) is our last-ditch protection,” against a budget collapse if the Legislature can’t agree on the governor’s restructuring, Wohlforth said. “We don’t want these funds frozen (in long-term assets) when we may need them.”
Pitney detailed the spending reductions among several state agencies and also mentioned several other initiatives aimed at saving money including “privatizing” the state’s Pioneer Homes for retirees, with options of just “out-sourcing” management to outright sale of the facilities, and a state “Health Trust Authority” that would combine all state-funded health care programs under one organization.
Washington and Oregon have statewide health care authorities and are reporting successes in saving money, but whether this approach would work in Alaska, in a much smaller market, remains to be seen, she said.
The state administration also has initiatives underway to centralize state IT services and to institute “shared services” plans in facility management, procurement and collections.
A study of possible savings of combining some of the independent state corporations, such as Alaska Housing Finance Corp., the Alaska Industrial Development and Export Authority and the Alaska Energy Authority is also underway.
Tim Bradner is a correspondent for the Journal. He can be reached at timbradner@pobox.alaska.net.
