Andrew Kitchenman

State budget talks are entering their final phase. The House and
Senate have appointed members to a budget conference committee.

The committee will work out differences between the operating budgets
passed by both bodies.

The House budget would cut $283 million from the part of the
budget under the legislature’s control. The Senate would cut $345 million.

The biggest difference between the two budgets is that the Senate
includes $100 million in cuts that aren’t allocated to a specific
department. It’s not clear if the final budget will include this cut.
The legislature could find specific areas to cut, or ask Gov. Bill
Walker to make the cuts on his own.

The House members of the conference committee are the Republican
Finance Committee co-chairmen Mark Neuman of Big Lake and Steve
Thompson of Fairbanks, and Anchorage Democrat Les Gara.

The Senate members are Republicans Pete Kelly of Fairbanks and Anna MacKinnon of Eagle River, and Democrat Lyman Hoffman of Bethel.

Hoffman is a member of the majority caucus, so there will be no minority-caucus senators on the conference committee.

The minority-caucus Democrats lost their only member of the Senate Finance Committee in February, when Sen. Donnie Olson switched caucuses. The Democrats also lost their status as an official minority caucus, which entitles them to have a member on standing committees.

There legislature is scheduled to adjourn April 17.

Rep. Kurt Olson, a Soldotna Republican, developed a plan to tax Permanent Fund dividends back in February, but he didn’t introduce it at the time because he wanted to see how the debate over plans from Gov. Bill Walker and others unfolded.

With less than two weeks left in the session, Olson decided it was time for House Bill 376, which would apply a 35 percent tax to dividends.

“It would have taken pressure off some of the other things had it been out there in February, which is about when we were done with the design and the modeling of it,” Olson said. “It would not been used for what I thought it should be used for, which is something to buy some time without being a permanent fixture.”

The tax would have raised $470 million last year, and Olson estimates it would bring in a similar amount this year. It would sunset after four years. Olson said this will allow the state enough time to find a long-term solution to the state’s budget problems.

Olson said legislative leaders are interested.

“We haven’t really looked for comments but the comments that have been made so far were interested,” he said. “Because it does have a certain, you know, simplicity to it. And it’s finite. I mean, you know what it’s going to be limited to.”

But members of the Democratic minority are giving Olson’s bill a cool response.

Fairbanks Rep. Adam Wool said the state should look for a long-term budget solution this year.

“It’s another kick-the-can bill,” Wool said. “I mean, it’s a quick grab of money out of the Permanent Fund that doesn’t really have any long-term sustainability. It’s a short-term fix, and I think it’s the wrong way to go.”

Olson said it’s important to note that his bill wouldn’t draw directly from the Permanent Fund, but from dividend checks. These checks would remain higher than under proposals by other legislators and by Walker.

The tax “did not come out of the corpus of the fund, it did not come out of the earnings reserve, and it did not come out of the (Constitutional Budget Reserve). It came out of the check as it was issued,” Olson said. “So, from that standpoint, we’re not raiding the Permanent Fund. We’re taking a modest amount of the check.”

The House Labor and Commerce Committee, which Olson chairs, introduced the bill on Monday. It was referred to the House Finance Committee.

Senators have amended a bill that would overhaul Alaska’s criminal justice system, taking steps to make it more difficult for those convicted of sex crimes to benefit from the bill’s provisions.

Senate Bill 91 is aimed at reducing recidivism, as well as the state’s prison costs. It would divert people charged with nonviolent offenses into alternatives to jail. And it would create a re-entry program to improve prisoners’ chances of success.

But victims’ rights advocates had raised concerns. The Senate Finance Committee amended the bill to make it harder for sex offenders to benefit. They wouldn’t be eligible for some of the reduced sentences available to other offenders.

Bill sponsor Sen. John Coghill, a North Pole Republican, said he understood why the changes were made.

“The Department of Law, the public defenders, the victims’ advocates group have all had a huge say in it,” Coghill said. “The police, who have to hold people accountable in a very, very dangerous circumstance — the way we deal with drugs — all came to the table, and I think, hammered out a better way of doing it than we’re doing it now.”

He added that he’s hopeful that the bill will make Alaska safer.

One amendment removed people found guilty of criminally negligent homicide from the group who would have their sentencing guidelines reduced. Some deaths resulting from drunk driving are examples of criminally negligent homicides.

But the committee voted 5-2 to drop another amendment that would require drug tests to receive public assistance.

Coghill said he believes the amendments increase the likelihood that the bill will become law, by addressing the concerns of its critics. He says alternative programs to jail will prove their value over time.

“Jail time is thought more highly of than some of the programs. And I think we just have to prove that – time over time – it’s going to show that programs can change some people’s behavior,” Coghill said. “But it’s also going to show that jail time is the way the public condemns certain issues. And I think that came very, very clear through the process.”

The Finance Committee could vote to send the bill to the full Senate as soon as Wednesday.

The state government would buy the downtown Anchorage Legislative Information Office for $32.5 million under a recommendation the Legislative Council made Thursday.

It’s not a done deal. The council’s offer is about $1.5 million dollars less that what the building’s owners, operating as 716 West Fourth Avenue, LLC, have said they would accept.

Council Chairman Sen. Gary Stevens, R-Kodiak, said the offer is similar to the cost to move the office to the state-owned Atwood Building.

“The council said $32.5 million is the fair price, and we won’t go any higher than that, so it’s really now in the owner’s hands and he has to make that decision,” Stevens said of co-owner Mark Pfeffer. “Either he accepts that price or he doesn’t.”

The council voted 13-1 for the recommendation after meeting privately for two hours. The recommended price is the midpoint of two estimates that consulting group Navigant prepared for the state. Big Lake Republican Rep. Mark Neuman was the only no vote.

Pfeffer said the building cost nearly $37 million. He said the owners have accommodated the state’s requests.

“Every time we have those requests, we try to solve the problem. And so far, we think we have every time,” he said. “If we can help achieve savings, we’re willing to do it.”

The owners recently turned down an offer similar to the council’s recommendation. But ownership representative Amy Slinker said they’re glad the council came to a decision.

Slinker said in a statement: “Now we have something to talk about. We are going to analyze it and get back to them soon.”

A Superior Court judge recently ruled the state lease for the building illegal, because the state didn’t open it up to competitive bidding.

Under the lease terms, the state would have paid twice as much for the LIO over the next 20 years as it would for the Atwood Building space.

Stevens said if the owners don’t accept the recommended offer, the state would move to Atwood. But he said buying the LIO would save the cost of moving — and it would end the litigation.

“This could wind up as very long, long litigation,” Stevens said. “And they’re to appeal the decision of the Superior Court, and that could really wind up being quite costly for all of us.”

The state will pay through July based on the terms of the invalidated lease.

What the legislature does in response to the state government’s $4 billion deficit could have big effects on Alaska’s economy, according to a leading economist.

Gunnar Knapp, director of the University of Alaska Institute of Social and Economic Research, told the Senate Finance Committee on Wednesday that uncertainty over the budget is a concern for the economy.

Knapp said closing the budget gap in one year could be too much, too fast. But it’s important for the state to have a plan, he said.

“If you can, in fact, reduce the uncertainty, then it makes more sense to implement … things over time,” Knapp said. “But there’s all the difference in the world between that and saying, ‘OK, we fixed 30 percent of the problem and we’ll, we’ll get back to you on what comes next.’”

Knapp said the state isn’t in recession yet, but appears to be heading into one. Job losses in the oil and gas industry, construction and state government have been offset by gains in health care and hospitality.

“I would say that regardless of what you do, I think it’s very unlikely that the recession we will be facing would be as severe or damaging as the 1980s recession,” he said.

Knapp said that’s because the economy is bigger, more diverse and less over-extended with borrowing and construction than it was in the 1980s.

Knapp urged lawmakers to focus on major issues, like making changes to Permanent Fund earnings and new revenue:

“My own instincts are that you can’t get there without new revenues,” Knapp said.

Gov. Bill Walker has proposed a personal income tax. Legislative leaders have so far resisted the proposal.

Fairbanks Republican Sen. Pete Kelly said he doesn’t want to raise taxes until the legislature has done more to cut the size of government.

“If we’re getting into the discussion of the things that begin to affect the flat-rate mechanic in my district, about whether he or she should pay taxes and start giving up the fruits of their labor,” Kelly said, “that has to be done later, after we have made sure everything else about government is on the table. Then we’ll start talking about the things that are on their table.”

Kelly questioned whether Knapp’s emphasis on having a state fiscal plan to reduce uncertainty was influenced by Gov. Bill Walker. In response, Knapp said he realizes lawmakers face difficult decisions, but he’s trying to stay out of the politics on either side of the issue.