Editor’s note: This story has been changed to correct the House sponsorship of Senate Bill 193, creating a work requirement for Medicaid. Rep. Chuck Kopp (R-Anchorage) was the bill’s House sponsor, not Rep. Gary Knopp (R-Kenai).
Two of the central Kenai Peninsula’s state legislators made the case for the state government’s ability to balance future budgets primarily on oil revenue, aided by the newly approved draw from the Permanent Fund earnings reserve.
Sen. Peter Micciche (R-Soldotna) and Rep. Gary Knopp (R-Kenai) spoke Wednesday to the joint Soldotna and Kenai chambers of commerce. Rep. Mike Chenault (R-Nikiski) — who is not running for re-election this year — was out of state on family business, Knopp said.
Micciche — who will run in the August Republican primary against first-time office seeker Ron Gillham of Soldotna — said his 2019 legislative plans would be based on the belief that under current oil prices and with a Permanent Fund earnings draw in place, the state’s budget can balance in the near future without requiring new revenue. His goals include keeping state spending near the level of inflation by way of cuts, particularly to Medicaid.
Per-barrel prices of oil — the commodity that in the past has supplied about 70 percent of the state’s revenue —are recovering from the late 2014 plunge that took monthly average prices from $110.76 in June 2014 to $48.87 in January 2015 and sent the state into three consecutive years of multibillion-dollar budget deficits. Unrestricted petroleum revenue dropped from $4.7 billion in fiscal 2014 to $874 million in fiscal 2017, according to the Alaska Department of Revenue.
May 2018’s monthly average oil price, according to the Department of Revenue, was $76.12. The department’s Spring 2018 revenue forecast estimates $1.6 billion in petroleum revenues in fiscal year 2019 and projects petroleum revenue will reach $2 billion by 2025.
Even with the increase, legislators faced a roughly $2.5 billion deficit as they worked on the present fiscal 2019 budget. However, the final budget that Gov. Bill Walker signed Wednesday reduces the deficit to $700 million with a draw from the Permanent Fund’s earnings reserve allowed by a piece of fiscal legislation — Senate Bill 26 — that the Legislature passed in early May. The draw is capped at 5.25 percent of the $65 billion fund’s market value, and after three years will drop to 5 percent.
With these changes, Micciche predicted a balanced state budget within a year or two, and the possibility of beginning to rebuild the state’s Constitutional Budget Reserve — the savings from which the deficits have been funded, with a present balance of around $2 billion — by 2025. Cuts, he said, would also be needed.
“We believe there’s room, primarily by managing the Department of Health and Social Services, to reduce the growth,” Micciche said. “Not saying it’s not going to grow — the price of an apple 10 years from now is going to be higher than the price of an apple today because you can’t magically stop inflation. But if we can control just below inflation … we believe we can balance it. Within the range (of oil prices) we expect, we believe we’ll be balancing within a year or two without broad-based taxes, by managing cost.”
According to the state’s Office of Management and Budget, DHSS’s budget has been cut by 9 percent or $113.1 million since fiscal 2015, the largest cut by dollar amount of any government department in that time.
In the past legislative session Micciche co-sponsored a bill — Senate Bill 93 — requiring Medicaid recipients to spend at 20 hours a week at jobs, education, or volunteer programs. Though the Senate passed the bill May 3, it ended the session in the House. In 2019 Micciche said he’d continue seeking changes to Medicaid.
“We have to manage utilization, we have to challenge eligibility,” Micciche said. “… Work with (recipients), help them get the care they need, make sure people are not going for the sniffles. A large part of medical care is because people are lonely. I’d much rather spend the money on a community organizer in various locations around the state that can visit with seniors, get them the services they need.”
Audience member Pamela Parker questioned the role of oil prices in Micciche’s budget recovery scenario, using the metaphor of a strained household budget that Micciche has often also used in explaining Alaska’s budget issues.
“We’ve already cut our expenses a little bit, pulled a bit from our savings, and now it sounds like we’re at the point where instead of going out and getting a part-time job to help bring in more revenue to our household, we’re just sort of keeping our fingers crossed that our boss is going to give us a raise, and that raise is going to cover all our expenses,” Parker said. “That’s how I’m interpreting us waiting for the price of oil to be back at a level that will cover our expenses, versus us going out and getting that part-time job, i.e some other revenue into the state … We can’t rely on oil and gas forever. We saw that in the last few years.”
Micciche said the Permanent Fund draw “diversified our revenue stream significantly, by a couple billion dollars a year.” If the Legislature enacted additional revenue measures with expected future North Slope oil production and current prices, he said the state would likely be overcapitalized soon — incentivizing unsustainable spending.
“We believe we have the right pieces on the table that we’re considering,” Micciche said in a later interview. “If oil crashes for the long term, we’ll have to have different discussions.”
Knopp, a former Kenai Peninsula Borough Assembly member, is finishing his first term in the Legislature and will run unopposed in the November election.
“My first year down in Juneau was pretty contentious,” Knopp said, describing his experience as a member of this session’s Republican house minority, where he said he had “not a lot of influence, but we built a lot of great relationships on both bodies, the House and the Senate.”
“We had a new bully, I guess, in town and they were trying to figure out what to do,” Knopp said, referring to the mostly-Democrat House majority caucus. “The second session, they didn’t work so well with themselves, so it was somewhat amusing to watch what was progressing and not progressing. They slowly fell apart, and then they needed all of us — we came together and ended up working pretty well towards the end of the session on a lot of issues.”
Knopp commented on the successful House Bill 331, which would sell bonds to pay the $806 million the state owes to oil companies under tax credit incentives that ended in 2016. Though the Legislature passed the bill in early May, Juneau resident Eric Forrer has taken the question of whether bonding is a constitutional way to manage state debt to the Juneau Superior Court, and Walker has not signed it.
Knopp said the bond plan “was a great bill,” although the tax credits it would pay off were “a program that probably should not have happened, or happened in a different manner.”
“It kind of ended up biting us in the long run, but it is an obligation the state has,” Knopp said.
Reach Ben Boettger at email@example.com.