By Tim Bradner
It will take a while for its significance to sink in, but the Legislature’s adoption of a plan to use certain Permanent Fund earnings to help support the state budget is a historic milestone. For the first time since North Slope oil revenues began pouring into the state budget in the late 1970s we have diversified the state’s revenue base.
There’s more to be done, of course. There’s still a deficit, but it’d smaller and more manageable, maybe $500 million for next year compared with – ugh! - $3.7 billion in 2015.
Accomplishing this has taken three years and it’s not unusual for a major change in state policy to take several years. It just takes a while for the Legislature, and indirectly to public, to get their arm around a complex problem. This was, because it affects the Permanent Fund, was particularly sensitive.
There are still problems, too, such as built-in pressures in the budget that will push costs higher, such as health care costs for public employees and teachers, and retirees. Getting a handle on those costs is now a major objective of the state administration.
But we’ve come a long way. State budget director Pat Pitney ticked off some of the accomplishments in a July 13 talk with members of Commonwealth North, a business-focused public policy group based in Anchorage.
Here are some highlights from Pitney’s presentation:
- In 2015 we had a $6.1 billion state budget (general funds, undesignated) but only $2.3 billion in revenues after oil prices crashed.
- Today the budget is $4.7 billion – a 30 percent reduction – and the deficit would shrink to $700 million assuming oil prices at $63 per barrel, the official state forecast. Oil prices are already averaging above that and the deficit is likely to shrink to $500 million. If prices average $73 per barrel over the next year there will be no deficit.
- The spending cuts have not been easy. Today there are 2,900 fewer workers on the state payroll than in 2015. About 1,500 of these are from state executive branch agencies and 1,400 are from the University of Alaska. The savings from these reductions amounts to about $25 million a year in wage and salary outlay.
What if nothing had been done? If the Legislature had not authorized the Permanent Fund earnings draw in Senate Bill 26 and if spending had not been cut the state would face a $3.1 billion deficit in FY 2019. “We have covered 80 percent of this with spending cuts and the Permanent Fund earnings,” Pitney told Commonwealth North. About $1.4 billion of this can be attributed to the cumulative reductions in expenditures and $1.7 billion to money taken from the Permanent Fund earnings reserve this year.
Pitney cited one example of expenditure reductions, in travel. “We’re spending 40 percent less in travel this year than in 2015.”
There are several “shared services” initiatives including facility maintenance, where a pilot program being done in Juneau is being expanded statewide.
Efforts to streamline services in agencies that serve the public directly, like the Division of Motor Vehicles and the business licensing group in the Department of Commerce are getting satisfactory reviews from the public. Much of this is being accomplished through wider use of on-line service.
This hasn’t been easy for some state employees used to the old ways, Pitney said, but the administrative services staff in the different agencies, who tend to the budgets, “are on board with it.”
Discomfort from disruption is understandable. “People want to know, ‘who’s my boss?’ We think it will take about five years before people think this is normal,” Pitney said.
To date, however, reductions have been the “low-hanging,” or at least the “mid-hanging” fruit. Deeper reductions, if they are made, will require major reorganizations. It’s not certain that the Legislature, or the public, will agree to this, either.
In the 2018 legislative session, for example, the Legislature actually ordered increases for certain programs above what was recommended the Governor. One example, while small, was telling: The administration had recommended elimination of $100,000 in grants to community libraries and museums. Legislators added it back.
In another case lawmakers authorized new money as “innovation grants,” for schools to research for new, improved curriculums for certain academic studies.
In health care, where there are major concerns over rising costs, the Department of Health and Social Services is beginning to implement experimental demonstration programs in delivery of health services to Medicaid patients.
The belief is that improved service will make for healthier people and lower costs in the long term.
Legislators also gave the governor his requested increases for public protection and crime prevention, although there was intense public pressure to do more to combat rising crime.
A point Pitney made is that the Legislature, and the public, may have reached the point where they sense enough cuts have been made, and that more reductions will cut into services people really care about.
“Right-sizing” government will always be an imperfect process. Legislators can never know precisely what the right level is. In the end it’s a judgement call. But when push back starts, when legislators back away from cuts and start adding back, it’s a signal.
Tim Bradner is copublisher of Alaska Legislative Digest and is the 2018 Atwood Visiting Professor of Journalism at the University of Alaska Anchorage
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