Earthquakes, vetoes, municipal budgets - Must Read Alaska
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Sunday, September 15, 2019
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Earthquakes, vetoes, municipal budgets

BY WIN GRUENING

On Nov. 30, Alaska’s southcentral region experienced a magnitude 7.0 earthquake ranked as the second most damaging in our state’s history. 

 But better preparedness, improved building standards, and faster response all worked together to help mitigate the impacts. Alaskans were rightfully proud of their resilience and orderly response to this event.

Gov. Dunleavy’s $440 million in vetoes of the Legislature’s budget, adding to the $190 million in cuts passed earlier by the Legislature, also generated shockwaves throughout Alaska.  Virtually no sector of the budget or geographic area of the state was spared.  

The public reaction was immediate, seismic and unconstrained.  

This brought into sharp focus the ramifications of the governor’s plan to pay a full statutory Permanent Fund Dividend – estimated currently at $3,000 per person at a cost of $1.9 billion annually.

The Legislature has been unable to override some or all of Governor Dunleavy’s vetoes since 45 of the 60 legislators were required to reach agreement.  This was an unlikely scenario given the differences that had surfaced throughout the regular session.

Lawmakers gaveled in Monday, July 8, for a 30-day special session called by the governor.  Presumably, they were to consider funding for the Permanent Fund Dividend and pass a capital budget – since neither were decided before legislative adjournment on June 13.

But that’s in limbo, since the Legislature couldn’t agree on the location of the special session – Juneau or Wasilla.  The governor specified in his special session call that the location would be Wasilla. A majority of the Legislature decided to meet in Juneau while some legislators met in Wasilla.  A court may decide this as the Legislature and the Governor each believe they have the right to determine the location of this meeting. 

At this point, it’s hard to see how this will play out.  Both sides have legitimate concerns that deserve to be addressed.  But the divisions run deep and, in many cases, are philosophical in nature.

The ugly truth remains…over the past decade, Alaskans have squandered their savings instead of preparing for the inevitable.   Living beyond our means has led to our current situation.

It’s useless now to point fingers or wring our hands. 

Even if an eventual agreement is struck between the Governor and the Legislature to reduce the PFD amount to half the Governor’s request, all the cuts now proposed (or an equal amount in taxes or savings) will be needed to pay for it.  

Many contend it makes no sense to pay for a Permanent Fund Dividend with an income tax.

So, it’s likely we’ll be facing additional cuts at the state level next year, requiring more belt-tightening before the state budget stabilizes.

Municipalities should recognize this and plan accordingly.  Some have already begun.

Mayor Ethan Berkowitz announced that Anchorage property taxes probably will be raised.

In the fastest-growing area of the state, the Mat-Su Borough wisely cut $12 million from its budget, yet no job layoffs are anticipated.

Facing a school debt reimbursement reduction of $3.7 million, Juneau Mayor Beth Weldon said the city plans to use restricted budget reserves to cover that shortfall temporarily.  Juneau’s borough assembly scheduled a meeting on July 22 to discuss possible long-term solutions to mitigate state budget cut impacts.

Hopefully, the Juneau Assembly will take a balanced approach that includes budget reductions in less essential programs and services and continues their review of tax policy – in particular, the exemption of sales tax collections on retail sales by nonprofits.

Without matching Mat-Su Borough’s growth, Juneau’s current demographics (flat population and state job losses) cannot absorb significant state or local tax increases that would only make housing less affordable and economic development less viable. 

Postponement or scrapping of large scale non-essential projects will be necessary. In Juneau, this includes, specifically, a new $26 million performing arts center which recently requested $7.5 million in city funding. Coupled with $17 million in proposed repairs/upgrades to Centennial Hall convention center and a desire for a new $26 million city hall, it would be irresponsible to consider tax-hiking projects like these in this unstable budget environment. 

We can’t control Mother Nature, and even though we are the Capital City, we can’t call all the shots.

But we can prepare for the challenges ahead.

Juneau’s city leadership has been fiscally responsible in the past and we should expect them to remain so as these budget tremors continue.  

Win Gruening retired as the senior vice president in charge of business banking for Key Bank in 2012. He was born and raised in Juneau and graduated from the U.S. Air Force Academy in 1970. He is active in community affairs as a 30-plus year member of Juneau Downtown Rotary Club and has been involved in local and statewide civic organizations.

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Latest comments

  • I continue to always appreciate Mr Gruening’s perspectives. It’s a perspective I have had similar concerns with. Simple thoughtful long term concerns.

  • All I ask is for a balanced budget- whether by cuts or by reducing the Dividend. That is our choice.

    Assuming the vetoes hold, how much would the Dividend be with a balanced budget? A $3000 Dividend blows a giant hole in the budget I am sure.

    • Clarification: Without the vetos, you get a $900 pfd. With the vetoes, the budget balances with a $1,600 pfd.

    • The dividend has zero to do with the budget. The PFD was designed to be seperate and only now that the state budget is so bloated they want the states share and the peoples share. This is exactly why the PFD was created to begin with.

      • While you may think that Kimberly, the Alaska Supreme Court has ruled that the dividend is just another appropriation by the legislature.
        Just how it is, regardless of how you think it was designed.

  • The capital budget may need to tap the PFER instead of the CBR. That will also put us over the 5.25% cap.

  • The only reason to pay for the PFD with income tax is to take money from people who earn an income to distribute it via PFD to those who do not. I might be wrong, but on its face, it wouldnt even be an equal exchange. To cover everyone, and presumably overhead and administrative costs, those working would have to pay in more in taxes than they would ever hope to recoup via PFD.

  • “a full statutory Permanent Fund Dividend – estimated currently at $3,000 per person at a cost of $1.9 billion” just to note, the only cost associated with the dividend is to the PF Earnings Reserve. There is no cost to the state or to any other entity, the only cost for disbursement is to the fund itself and specifically to the earnings reserve. The dividend does not cost the state a single dime.

    • You , like many Alaskans, are misunderstanding the legal issues. You do not have a direct right to the oil income. That income must flow through the Legislature and be appropriated like any other income. So for you to say it doesn’t cost the State a dime is incorrect. The funding from the PFER can be used for any purpose
      I agree this does not follow the Dividend Statute but the statute can be constitutionally ignored by the Legislature. The statute has not been followed for the past 3-4 years. All we have to do is balance the budget -let the chips fall where they may.

      • I’ve never claimed a right to oil income. You misunderstand the statute and where the money comes from. Look into how the dividend is paid by statute, not how it has been paid illegally the past few years. All costs are paid by the earnings reserve, the state does not pay one single dime. The PF Dividend Division is in the AK Department of Revenue for crying out loud, not in the department of expenses! Even though all of the money from the dividend flows through the legislature it costs the state exactly $0.00. People that say the dividend costs the state money do not understand simple math.

        • Four-flusher, you are assuming Legislature has paid the PFDs illegally the past few years but the Alaska Supreme Court has ruled them legal and proper.
          Get over it.

      • I would be interested in seeing where, exactly, the constitution allows for the legislature to constitutionally ignore statute. Especially since statutes are written by the legislature. Are you suggesting that the legislature is beyond the constitution, that they transcend it? If so then that explains the antics of those who reported to Juneau this last week.

  • I’m confused about the “reverse sweep”.
    How much is swept back into the CBR from these agency savings accounts?
    Was the reverse sweep supposed to fund all of the capital budget or just part?
    Or was the plan to do the reverse sweep and also further tap the balance of the CBR?
    Why do the swept funds need to be re-filled into these accounts?

  • I always agree with Mr. Gruening’s comments. The exception is that he is an advocate for maintaining the biggest problem in our state – the legislature meeting in Juneau. We elect people then send them on a retreat to a very remote location inhabited by government workers and lobbyists. After awhile our elected officials lose touch with reality and vote to spend more than is necessary or prudent. That wouldn’t happen as much in Wasilla. Or Bethel. Easy for me to say. I don’t own property in Juneau, so I have no conflict.

  • After watching the Annual ‘Clown Show’ play out in Juneau, with all of the antics and theatrics, I can’t help but think that folks are losing sight of the big picture questions, such as:

    – Is the SOA Government the right size to provide “essential” services?
    – With the population of AK around 750,000 is a budget of $10.5B reasonable and equitable?
    – If a certain segment of the population decides to reside in remote areas, why does the SOA have to subsidize their cost of living in these remote areas?
    – When reviewing the Top-3 Department Budgets, what is ROI on these and are we getting a “fair and equitable” return on these expenditures:
    o #1 – Health & Social Services @ $3.346B
    o #2 – Education & Early Development @ $1.673B
    o #3 – University of AK @ $888MM
    – If the private industry have to make adjustments to their organizations as the result of the downturn in the economy, why doesn’t the SOA have to reduce staff, take pay cuts, do more with less, and make other sacrifices?

    I think the Governor and his Staff are doing exactly the right thing, making reasonable cuts to SOA Government Budget in an effort to ‘right-size’ so as to be economically viable in the future. AND, I believe every Alaskan should support him and his Staff in this endeavor. If folks can’t support him then, they should offer a better alternative budget plan that ensures efficiency and sustainability.

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