The Morning Headlamp — Govt. Getting Smaller, or Is It? And Gov. Walker’s State of the State tonight

Shell Games with Government Reductions. State budget director Pat Pitney said Gov. Bill Walker proposes to cut 185 jobs in the next fiscal year, which begins July 1. Those cuts would leave the state with just over 24,000 workers across all agencies, the smallest figure since 2007. Sen. Anna MacKinnon, co-chair of Senate Finance, said the governor’s proposal “hasn’t really reduced spending overall in the state’s budget” because programs including Medicaid Expansion are benefiting from federal payments that reduce the need for state funds. “I’m not sure we’re really reducing state government,” she said. “We’re just moving the shell.” Other senators appeared upset that the governor’s proposal assumes the legislature will completely restructure Alaska’s oil and gas tax credit program and pass the Permanent Fund Protection Act, which would use the earnings of the Permanent Fund to pay for government services and link Permanent Fund Dividend payments directly to oil and gas prices. “You simply cannot cut your way out of the deficit,” David Teal, director of the Legislature’s finance division, told House Finance. While Headlamp recognizes that lawmakers cannot cut their way out of the deficit, we also contend that taxing our way out of it is just as infeasible. The budget put forward by Gov. Walker is not what we had in mind when Headlamp advocated for a smaller government. Real spending cuts, and fundamental reforms to formula driven programs are what Alaska needs, not income taxes and minor tweaks to state government. Sen. MacKinnon accurately pointed out during yesterday’s presentation that the Governor’s budget is using funny math, while Headlamp believes he may be shuffling money around in an attempt to make it look as if he’s cutting the budget.

Cuts won’t cut it. As the legislature gets back into full swing, lawmakers have begun to tackle the budget hurdles facing Alaska. Three Republican senators — Senate President Kevin Meyer, Finance Co-chair Anna MacKinnon and Resources Chair Cathy Giessel — say some combination of budget cuts and new revenues such as use of Permanent Fund earnings for this year are needed to solve the problem. We can’t cut our way out of this. Even if we were to cut $1 billion, we’d still have a multi-billion-dollar deficit, so cuts aren’t the total answer,” said Sen. Cathy Giessel, who chairs the Senate Resources Committee. Giessel’s comments came during a briefing of the Alaska Support Industry Alliance, a contractor group, on Jan. 14. “We have to do this a piece at a time, in a predictable manner that will preserve stability. To make radical changes too suddenly would not be good,” Giessel told the Alliance. Only after government is “right-sized” should taxes be considered, she said. Cuts are the first step Alaska must take to pull itself out of the current fiscal hole. Headlamp also recognizes that fundamental changes to long-term policies will be essential to reigniting substantial economic growth. Lawmakers need to address policies that will incentivize investment in our economy for the future.

Gov. Walker will be the center of attention once again as he prepares for tonight’s State of the State. Interested in what Headlamp thinks he should be addressing? Check it out here. Don’t forget to stick with @AKHeadlamp for rapid updates on Gov. Walker’s plan for Alaska.

As mayors of the boroughs along the proposed Alaska LNG Project corridor debated the appropriate allocation of $15.7 billion the state and local governments could get in-lieu of traditional property tax revenue on the project’s infrastructure, emotions ran high. However, it looks as though the tension may not be completely quelled. FNSB Mayor Karl Kassel has made it clear that he would not accept a scenario in which the borough received a PILT allocation based solely on infrastructure value within local government boundaries. Revenue Commissioner and board chair Randy Hoffbeck offered an allocation matrix at a December meeting that would split the PILT money based on infrastructure valuation, while leaving a small portion for distribution to local governments statewide based on population. Kassel suggested a 50-50 split of the pipeline portion of the PILT based on the location of assets and the population of the jurisdictions within the pipeline corridor. The legislature will make the final decision during the current session, regardless of what is recommended to the Governor. Headlamp hopes that all parties can come to an amicable resolution concerning PILT allocation, and that the AKLNG project continues to move forward without running into politically caused delays.

The people have spoken? The Rasmuson Foundation on Wednesday released the results of a new public opinion poll on the state’s fiscal crisis showing that a solid majority of Alaskans want the Legislature to take steps to fix the problems. The foundation, one of Alaska’s largest nonprofits with $625 million in assets, is promoting a plan to help balance the state’s $3.8 billion deficit that would rely on both cuts and new revenue — two elements that many experts say are necessary, even though legislators have been skeptical about levying taxes or reducing Alaskans’ Permanent Fund dividends. The poll results support the plan promoted by the foundation. 83% percent of respondents said they were less likely to support legislators who take no action to fix the budget crisis. And 55% of people who had heard about Gov. Bill Walker’s proposal to close the budget gap, which involves an income tax and smaller dividends, said they would support it, compared to 32 % who were opposed and 13 % who weren’t sure.  The poll also found that Alaskans oppose implementing a statewide personal income tax by a 15 percent margin. Furthermore, by a 19 percent margin, Alaskans support cutting the state operating budget by another $500 million, knowing it would reduce services currently available to Alaskans. To ensure the most accurate representation of the Alaskan people, Headlamp hopes more polling and robust data is collected from citizens on their views of how the state should deal with the deficit. Overall, we are encouraged to hear that Alaskans are becoming more concerned and aware of the state’s fiscal problems.

There’s a durable sense of weakness in the oil economy and, while recovery is expected, it’s uncertain when, Royal Dutch Shell said yesterday. A spokesperson for Shell said the company was positioning itself for a sustained downturn by cutting capital investments. The company is planning to merge with British counterpart BG Group. Combined spending of $33 billion for the year will mark a 45 percent reduction from its peak. “These actions will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies, as streamlining and integration of the two companies continue,” he said in a statement. Headlamp hopes that one day in the future, with the right market conditions and policies in place, Shell is able to develop Alaska’s massive offshore oil and gas resources.

 

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First Reads

State budget calls for fewest gov’t workers since 2007
Juneau Empire, James Brooks, January 21, 2016

Lawmakers begin digging into Walker budget plan
Associated Press, Becky Bohrer, January 21, 2016

Buckling down in face of budget deficit
Alaska Journal of Commerce, Tim Bradner, January 20, 2016

Fairbanks wants bigger slice of $15.7B PILT pie
Alaska Journal of Commerce, Elwood Brehmer, January 20, 2016

Budget expert to lawmakers: ‘The free ride is over’
Alaska Dispatch News, Nathaniel Herz, January 20, 2016