We present this early Saturday report for our readers who might otherwise miss it over the weekend
You won’t see this side-by-side review anywhere else!
On the one hand, we have accomplished Oil & Gas attorney, Brad Keithley, describing his view of how the budget has been manipulated to reflect more cost cutting than has actually occurred. On the other hand, Alaska State Representative, Mark Neuman, House Finance Co Chairman, describes significant budget cuts that have been made along with the budget process. We think our sophisticated readers will gain much by reviewing this side by side comparison of viewpoints. -dh
Brad Keithley’s Budget PerspectiveWednesday’s First Post from Alaskans for Sustainable Budgets: Just stop already. The Ak House Majority loses more and more credibility every time they go down this road.http://goo.gl/zVvjlQ The $4.26 Billion Operating Budget they claim? It only includes $30 million for #OilCredits.  Brad Keithley, NGP Photo by Dave Harbour Even their own analysts admit the state is projected to owe $770 million in FY 2017 under HB 246. Where is the other $740 million? $430 million of it is in the same appropriations bill, but in a different section which, “nod-nod, wink-wink” reallocates funds arbitrarily assigned to “FY 2016” to cover FY 2017 UGF expenses. And the remaining $310 million? Unaddressed in the bill, but “nod-nod, wink-wink,” slated to be covered in the FY 2017 supplemental appropriation bill next year. Include all of that in the year in which the funds are to be spent — FY 2017 — and the operating budget becomes $5.01 BILLION. And the tricks don’t end there. The number doesn’t include the $55 million the #AKLeg allocated at the end of the session in a separate bill for the health insurance bailout, and doesn’t include $90 million the #AKLeg took out of the Alaska Higher Education Investment Fund to help pay for the annual PERS/TRS liability, one which in prior years has been treated as UGF spending. Add those along with capital spending, and the total UGF FY 2017 spend turns out to be approximately $5.3 BILLION, down only slightly from the $5.4 billion contained in the FY 2016 budget (at least before they started using it to hide some FY 2017 spending). To us, the better way to approach this would be to man up and say “we made a lot of cuts elsewhere which will help us in future years, but those were offset by the unanticipated high level of #OilCredits. But we recognize that and have made changes which will help us in this and future years there as well.” The latter statement isn’t as true as it would be if the #AKLeg had adopted the Governor’s, or even the House version of HB 246, but at least it would be truer than the pulp fiction which Rep. Neuman has penned here. Yep, we understand they said they would hold spending below $4.5 billion before the session, and desperately wish to make it so. But wishes aren’t reality. Instead the reality is, as the ISER sustainable budget approach actually would calculate it (yes, Rep. Neuman is wrong there as well — surprise, surprise), the FY 2017 spend (dollars out the door) is $5.3 billion. (A slide deck laying that out is available here: http://goo.gl/og675h) Not only does holding to this continued fiction cause us to lose faith in the House Majority generally, it is causing us to lose faith also in specific members who, as candidates, are using the same line in their campaigns. If they can’t be honest with their constituents on questions of basic math, how can we trust them to be honest about other issues they may face if reelected, or in the case of some, elected to a higher office. The truth is, we can’t. As we indicated above, they should fess up to what really happened this past session and be honest with their constituents about what they intend to do to fix it going forward. If they can’t bring themselves to do that — or if they really are so confused by actual numbers that they can’t understand what is going on here — they shouldn’t be returned. We need legislators with basic honesty and math skills, not those who think so little of their constituents they can’t be honest with them. |
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Representative Mark Neuman’s Budget Perspective
Oil/Gas Tax Credits
As of May 2016 (FY16), $630 million of oil/gas tax credits had been earned and applied for to the Dept. of Revenue.
Representative Mark Neuman, Co-Chairman, Alaska House of Representatives Finance Committee. NGP stock photo by Dave Harbour
The DOR estimated another $125 million would be earned in FY17 (total $755 million)
The legislature had access to the Constitutional Budget Reserve (CBR) and Statutory Budget Reserve (SBR) in the current year, FY16, which allowed a $430 million partial payment of the oil/gas tax credits earned in FY16.
A formula in state law calculates the minimum dollar amount the state must pay in a year toward the oil/gas tax credits owed.
The Governor had the minimum payment in his FY17 budget submittal, and the legislature kept the minimum payment in the FY17 budget ($30 million).
There is no plan (or ability) to use the FY17 supplemental to pay for oil/gas tax credits. The CBR vote to balance the FY17 budget included a $100 million cap for supplementals.
In short, you could view the oil/gas tax situation this way:
When you ring up your credit card bill, you always face a choice: you can choose to pay as much as your budget allows in the current month, or you could make the minimum payment. Which is more fiscally responsible? The legislature choose to use money available in the current year to pay as much as possible of the oil/gas tax bill that was accrued this year. Paying off a debt is a good thing, and when you do so, that debt doesn’t carry forward to next month’s, or next year’s obligations. The legislature did not transfer any of the FY17 oil/gas tax credit obligation to FY16, we simply chose to pay what we could afford in FY16, and lowered our debt going forward. We need to pay our debt as much as we can , not send it to future Alaskans . These are funds that go to our Alaskan companies that support our petroleum industry .
PERS/TRS Liability
Late in session, the legislature received an updated actuarial analysis from Buck Consultants, Alaska’s contracted Actuary firm. That analysis showed our unfunded liability obligations for the next five fiscal years were to be lower than previous projections.
Those reductions would have applied to FY17, but it was technically unrealizable to achieve those savings due to the process applied by the Alaska Retirement Management Board and the Department of Administration.
Given that we were “overpaying” our obligation by $90 million in FY17, the Conference Committee used the Higher Education Fund to replace and save Unrestricted General Funds (UGF). This fully funded our liability for PERS/TRS in FY17.
The legislature will appropriate the same amount of UGF for retirement payments in FY17 as they will in FY18. In other words, the FY17 and FY18 PERS/TRS retirement payment will be the same UGF amount, or flat. There will be no UGF retirement “hole” in FY18.
One of the main reasons our PERS/TRS obligation is lower can be attributed to the $3 billion contribution which the Legislature and the previous Administration made two years ago. The cash infusion improved the health of the retirement systems and we are seeing the benefits of that deposit today and into the future.
Health Insurance “bailout”
With Obamacare, insurance rates were supposed to go down. In Alaska, the individual rates have skyrocketed because we don’t have enough insured people to spread out the costs. Insurance carriers have lost money and left the state, and we only have one remaining.
The choice the legislature faced was this: if the last individual health insurance carrier (Primera) leaves, the state will have to take over the individual insurance market. Estimates are it would cost us $200 million to set up, and a couple hundred million a year to operate. Not a good option. So the state chose to use state insurance taxes (Designated General Funds, NOT UGF), to the tune of $55 million a year, to help subsidize individual insurance rates and to minimize industry loses. The hope is to attract more insurance companies to come back and do business in Alaska.
THE BOTTOM LINE:
Have any of the above actions created a hole in the FY18 budget that would make the $4.3 billion dollar FY17 UGF budget jump up? The answer is no. each of the above actions can be thought of as either one-time events or repeatable. The state could choose to make the statutory minimum oil/gas tax payment in FY18, the Pers/Trs payments will be flat over the fiscal years, and the insurance ‘bailout’ used DGF, not UGF. The insurance legislation also attempts to avoid hundreds of millions of added state costs if no individual health insurers remain in the state.
The state has to be efficient with our dollars to create a more stable budget to reduce costs. Next year the budget for the state IS $4.3 billion .
That is the fact.
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