Andrew Kitchenman

Senators introduced four new bills Monday that would require local governments and schools to pay more for pensions, end two college scholarship programs, and cut the amount that municipalities receive in state funding.

Towns and schools are concerned about the effect on taxes and services.

The first measure, Senate Bill 207, would shift much of the costs of teacher pensions from the state onto local school districts.

Fairbanks Republican Sen. Pete Kelly, who supports the change, said he wants to ease the impact on districts.

“Obviously, the state is in pretty difficult times,” Kelly said. “There are some things we simply can’t do anymore. And it’s important, though, that as we recognize those things the state can’t afford to do anymore, that we mitigate the impact on communities and provide as many shock absorbers as we can.”

Association of Alaska Schools Boards Executive Director Norm Wooten said districts fear the effect of the higher costs.

“My members are very concerned,” Wooten said. “There’s some short-term and some long-term uncomfortableness about this. The short term is that districts have already issued teacher contracts. They’re putting the final touches on their budgets and they still don’t know not only what they’re not going to get, but what they’re going to lose.”

In the long term, Wooten said districts could cut programs and lay off staff.

The increased costs would be offset in at least the first year by the second measure, Senate Bill 208. This would phase out two college funding programs: Alaska Performance Scholarships for students with high grades and test scores and Alaska Education Grants for students with financial need.

These programs would be wound down by 2022. A portion of the fund that paid for these programs would be used to lower school districts’ pension contributions.

The third piece of legislation, Senate Bill 209, would also increase local pension contributions. Municipal and other government bodies that contribute to the Public Employees’ Retirement System would have to pay more. They currently pay the equivalent of 22 percent of salaries, but would have to pay 4.5 percent more by 2018.

Anchorage Mayor Ethan Berkowitz, a former legislator, said the bill was poorly thought out and didn’t include municipal perspectives.

“When they say that everything’s been put on the table, that doesn’t mean you’re carving up the municipalities and treating them like cash cows, and that’s what they’re trying to do right now. That’s not acceptable,” Berkowitz said, adding: “This has not been a process that has included municipal governments. It’s not been a process that’s included taxpayers. It has been a group of legislators operating in a closed room, without adequate input, just trying to solve a math problem.”

The fourth bill, Senate Bill 210, would cut the total amount the state pays to communities as revenue sharing in half. But it would increase the minimum payments to help protect rural communities.

Bethel Senator Lyman Hoffman, a Democrat who caucuses with the majority, said the state can’t afford to continue the program in its present form.

“Assisting those communities – primarily smaller communities throughout the state of Alaska that rely heavily upon the program, that may have 80, 90, 95 percent of their revenues to continue to keep their doors open,” is important, he said. “Whereas larger communities, they may only — this program may be less than 5 percent of their revenue and can … probably make better adjustments.”

Alaska Municipal League Executive Director Kathie Wasserman said the cost of all these changes could be large.

“All I know is that it’s going to be a huge impact,” Wasserman said. “You can’t hand a state bill over to the municipalities, lower the amount of money that they get, and then hand them an extra bill, and not have a huge impact.”

Eagle River Republican Sen. Anna MacKinnon said the bills were a necessary step to help close a state deficit of more than $4 billion. The four bills could provide $100 million, although the fiscal analysis must be completed.

“This suite of bills is attempting to address … a huge hole in Alaska’s budget, and it is a suite of bills that work together,” she said. “There is criticism to be had for any of the bills individually. But our goal is taken as a whole, that these bills will provide an opportunity for communities to understand the magnitude of the problem that the state is facing.”

MacKinnon and Kelly co-chair the Senate Finance Committee. The committee plans to announce opportunities for public testimony on the four bills.

 

Former Fairbanks North Star Borough Mayor Luke Hopkins’ appointment to the Alaska Gasline Development Corporation board of trustees was met with skepticism Monday.

The Senate Resources Committee questioned whether Hopkins and other board members have the experience needed to make important decisions about the proposed AKLNG pipeline.

Soldotna Republican Sen. Peter Micciche praised Hopkins’ devotion to the state. But he expressed concern that Hopkins and other board members would make pipeline decisions that weren’t in the state’s best interest.

“At some point, there has to be someone on the board that can call – I’ll try to think of a nice way for the word I would use – but I would say, could just call hogwash on something, when it comes to operational, marketing and direct natural gas and LNG experience,” Micciche said. “And I worry about that.”

Committee members noted that Hopkins was involved with Alaska Gasline Port Authority, which wasn’t successful in completing some of the natural gas projects it pursued.

But Hopkins said it wasn’t the authority’s decisions that stopped these projects, but market conditions.

Hopkins attempted to defend his background, as well as that of other board members. He said the board makes decisions drawing on the corporation management’s knowledge.

“Right now, I’m not sure anyone on the board has built a pipeline, that I’m aware of,” he said. “But we have the expertise, and that’s what we delve into, the same as when I was an elected official. I didn’t know everything about those actions that are coming forward, but you have a team that works on it.”

Hopkins joined the board in November when Gov. Bill Walker completed an overhaul of the AGDC board. It coincided with former AGDC President Dan Fauske’s ouster.

Sen. Bill Wielechowski, the committee’s only Democrat, said Hopkins brings a good perspective to the board.

“We’ve had this debate now for several years,” Wielechowski said. “Do you want a board stacked with oil company executives, who are making decisions possibly that are going to favor their old employers, or do you want a board who are making decisions who are going to favor Alaskans?”

Since Hopkins’ appointment was made outside of the legislative session, the Legislature now has the opportunity to refuse the appointment.

The Resources Committee members decided to forward Hopkins’ appointment to a joint session of the Legislature without making a recommendation.

Marijuana businesses are scheduled to open in June, after the state issues licenses. But there’s a hitch – the state won’t issue licenses until the Legislature passes a bill that allows for national criminal background checks, among other provisions. And that bill is currently in limbo.

The Alaska Marijuana Control Board has put the brakes on issuing licenses until it can do national criminal background checks on applicants.

State Alcohol and Marijuana Control Office Director Cynthia Franklin said that’s because the Legislature requires background checks for licensees. But it hasn’t passed a bill that’s been proposed that would allow Franklin’s office to do these checks. She’s hopeful that lawmakers will pass the bill soon.

“I truly cannot believe that the Alaska Legislature would hold this tool hostage and prevent … marijuana licensing from occurring, by enacting a statutory requirement and then not giving us the statutory language to meet that requirement,” she said.

The versions of the bill passed by the House and Senate differ over two provisions of the legislation that have nothing to do with background checks.

Wasilla Republican Representative Cathy Tilton opposed marijuana legalization. But as chairwoman of the House Community and Regional Affairs Committee, Tilton crafted the House version of the bill, House Bill 75. Her version would have required Unorganized Borough communities to opt out of allowing commercial marijuana businesses – mirroring state law for boroughs and municipal governments.

The Senate changed the bill to require Unorganized Borough communities to opt in. Tilton said she wants a conference committee to resolve the differences between the Senate and the House.

“Our goal was to be able to provide the communities with the tools that they need to implement whatever they want to do, at the local level, and that is why it was a good bill to me – to be able to allow those things to happen,” Tilton said.

The other provision that’s prompted differences would limit the number of marijuana plants residents could grow for personal use – some legislators would like it to be up to 24 plants, while others prefer a household limit of 12, with no more than six per adult. Tilton said she’s fine with the lower limit.

“I do feel that that is a reasonable number — especially if you’re looking at generating any kind of a legitimate commercial industry,” she said.

The legislative delay is a concern for those who want to launch their business in the coming months.

Sara Williams, chairwoman of the Matanuska-Susitna Borough’s marijuana advisory committee, has been frustrated with the holdup. She’s hoping her retail business Midnight Greenery will open in downtown Anchorage in September.

“I’m very hopeful that the Legislature can look forward to the future and realize that here we have a revenue stream,” she said. “We have an opportunity in a budget crisis to create jobs and create a revenue stream.”

Another bill could affect the Marijuana Control Board’s ability to issue licenses. House Bill 337, sponsored by Anchorage Republican Representative Gabrielle LeDoux, would allow the state to collect taxes on those who exceed the legal maximums for possessing and growing pot.

LeDoux said the bill would treat marijuana the same as alcohol. The bill also contains a provision that requires businesses that sell marijuana to post a bond. They would forfeit the bond if they don’t pay taxes.

Franklin said her office is ready to prepare the control board to issue licenses – but waiting for the Legislature to act hasn’t been the only challenge. Her office has fewer workers than those in other states that have legalized marijuana, and they’re answering a flood of questions from the public.

“You really just could not amp up the pressure any more than it is amped up on this staff,” Franklin said. “But that being said, they’re doing an amazing job. And we are … moving forward, and we’re on time.”

Representative Charisse Millett, an Anchorage Republican, is confident that once the background check bill goes to conference committee, the differences will be ironed out. But with the Legislature busy with other major legislation, it’s not clear when the bill will be sent into conference committee – or whether the licenses will be issued on time.

Update | 7:16 pm. March 24

The letter received a cool reception from the Republican-led House majority today.

House Majority Leader Charisse Millett, R-Anchorage, said legislators know that Gov. Walker can call a special session.

“I think if you take a look at what we’re doing in the House, the letter was probably unnecessary. We are working towards it. We are fully aware. We hear from our constituents every day the impact that the budget is having and the projected price of oil has on our economy. We are fully aware of that, so while I appreciate the governor writing a letter to us, we have an opportunity to talk to the governor. We speak to him quite often,” she said.

Original story | 9:18 p.m. March 23

Gov. Bill Walker says the legislature must agree to a complete and sustainable solution to the state’s fiscal problem this year.

In a letter to legislators Wednesday, Walker said continuing to draw on reserves without a solid plan to stop doing so is “wholly unacceptable.”

His own budget plan would draw on reserves over the next two budget years before balancing in 2019.

Walker pointed out problems with more delays. The deeper the state draws on reserves, the less money it will have to draw on in the future. And it would drive down the state’s credit rating. He said this will slow investment and cause the state’s economy to spiral down.

Walker said the state must cut spending, restructure Permanent Fund earnings and dividends and introduce a broad-based tax. He said the Permanent Fund changes must be based on rules that produce a stable amount of revenue and protect the fund.

Walker has proposed an income tax, but legislative leaders have resisted. Some lawmakers would prefer a statewide sales tax, but Walker didn’t propose one.

Walker said the legislature can accomplish this without additional sessions.

A bill to revise oil and gas tax credits from the House Resources Committee includes only a fraction of the savings Gov. Bill Walker proposed.

The Department of Revenue estimates the committee’s version of House Bill 247 would save the state roughly $160 million over the next three years. That compares with $1.175 billion dollars in savings under Walker’s proposal.

The committee rejected a series of amendments Tuesday that would have raised costs for oil and gas companies.

For example, Homer Republican Rep. Paul Seaton proposed cutting the share of losses that North Shore producers can receive. The Net Operating Loss tax credits would have fallen from 35 to 25 percent.

Anchorage Democratic Rep. Andy Josephson supported the amendment, which was defeated 3-6.

“The credit system we’ve devised is not sustainable in this economic climate and this would be a way to rein it in,” Josephson said.

But Rena Delbridge said the credits help smaller and newer companies operate on the North Slope. She’s an aide to Anchorage Republican Rep. Mike Hawker who worked on the bill.

“The Net Operating Loss credit … can also be thought of as a part of the fundamental tax calculation, in the sense that the state wants you to keep spending money, even if you are losing money, because that spend is potentially that future production,” Delbridge said.

Walker’s plan would prevent companies from using past losses to reduce their taxes below the minimum, like they can now. It also would raise that minimum tax from 4 to 5 percent.

The House Resources bill drops those provisions and scales back Walker’s proposal to cut tax credits.

Both plans are offset by at least $1 billion in tax credits that have already been promised to oil and gas companies.

The debate over the bill is happening the same week the state forecast that for the first time it will pay out more in oil and gas tax credits next year than it will receive in royalty revenue.

Despite the gulf between Walker’s proposal and the committee bill, Tax Division Director Ken Alper credits the Resources Committee with its work over more than 20 hearings on the bill.

“It was a respectful process,” he said. “It was informative. They fixed a number of the technical issues that were in our original bill, and that makes things easier going forward. And even if we disagree with where they went on some of the larger dollar-value changes, we’re going to continue the conversation.”

The bill must go through more steps before it reaches Walker’s desk. Next up is the House Finance Committee.

And it will face scrutiny in the Senate Finance Committee. Last year, Soldotna Republican Sen. Peter Micciche was a member of a working group that recommended the state prevent companies from paying less than the 4 percent minimum.

A proposal to allow state government to dip into Permanent Fund earnings is advancing in the Legislature.

The Senate Finance Committee heard details Tuesday about Senate Bill 114 from its sponsor, Anchorage Republican Sen. Lesil McGuire.

Similar to a plan from Gov. Bill Walker, Senate Bill 128, McGuire’s bill would pay for much of state government using fund earnings.

“In my opinion, we have to continue strategic cuts to the budget, but we can’t cut our way out of it. And that’s why you need a fundamental restructure to the Permanent Fund,” McGuire said.

McGuire’s bill has been revised over the past month. One amendment would cut the amount of fund earnings paying for government services if oil production taxes rise.

Another amendment would change the basis for Alaskans’ annual dividend payments. They’re currently based on fund earnings. McGuire wanted to base them on oil and gas royalties. Under the amendment, dividends would be based on a combination of fund earnings, royalties and the Constitutional Budget Reserve.

And another amendment would prevent a cut to dividends this year. In future years, dividends would be as low as one thousand dollars.

McGuire said Alaskans don’t want to see dividend cuts. They’ve gone through the first two stages of grief over the budget: denial and anger.

“What we’re hearing, again, is people in that stages of grief model are in the bargaining phase,” she said. “In my opinion, most Alaskans are there. They understand that, both because the private sector is interrelated to the health of the public sector (and) they also understand that without basic government services they wouldn’t really want to live in Alaska, so why would other young people come here and want to grow it?”

A key difference with Walker’s plan is that McGuire’s would bring in less money to the state. McGuire estimates that the state would draw roughly $2 billion annually from the Permanent Fund earnings.

Walker would draw $3.3 billion annually. Unlike McGuire’s bill, Walker would draw money from oil production taxes and the state’s Constitutional Budget Reserve into the Permanent Fund Earnings Reserve Account.

Neither plan would entirely close the state’s budget gap this year. Walker would spend more than $400 million in state savings in the upcoming budget. But he has emphasized that his fiscal plan would end the use of savings in two years.

The Senate Finance Committee will hear public testimony on Walker’s and McGuire’s Permanent Fund bills Wednesday and Thursday.