Budget Cuts are Missing, Don’t Touch the Permanent Fund!

Wednesday, June 8, 2016 - 11:33

The State House and Senate just passed the Conference Committee Operating Budget bill and, to no surprise, it reveals that little progress was made to reduce the cost of State government.  Despite continued claims of significant operating budget cuts, the budget numbers published by the Legislative Finance Division tell a different story: (http://www.legfin.state.ak.us/BudgetReports/LY2016/Operating/SelectBudge...).

First, when looking at total funding for the State’s Operating Budget, the Governor’s amended budget request for Fiscal Year 2017 (FY17) was $8.97 billion, compared to the Senate approved budget of $8.73 billion, and the House approved budget of $8.66 billion.  The Conference Committee landed on a compromise with the minority, with an operating budget of $8.83 billion. Unfortunately, the compromise budget is higher than budgets approved by either the Senate or House!

Compared to the $9.30 billion FY16 Operating Budget, the compromise Conference Committee budget represents a reduction in total State Operating costs of $470 million or 5.1%.  At this level, that doesn’t sound so bad…to some…BUT, there’s more to the story!

The operating budget is broken into two categories: “Agency Operations” (i.e., the cost of the day-to-day operations of the State’s departments) and “Statewide Items” (i.e., operating costs not associated with a particular department such as debt service, state retirement assistance and fund capitalization).  Although Agency Operations account for about 90 percent of the State’s operating costs, the $470 million reduction occurred almost entirely in the “Fund Capitalization” portion of Statewide Operations. 

“Fund Capitalization” appropriations are made to various State funds (such as the Disaster Relief Fund, Community Assistance Fund, Public Education Fund, Oil & Gas Tax Credit Fund, etc.) was reduced from $536 million in FY16 to $66 million in the Conference Committee budget.  This $470 million reduction in “Fund Capitalization” does not represent a reduction in the fundamental operating cost of State government.  It simply means that certain funds may become under-capitalized or underfunded, and therefore may not be able to meet their obligations.  Setting aside money in these accounts is a decision that Legislators make every year.  Reducing appropriations to these funds is a tool that has been used to create the appearance of lower operating budgets.

Now, let’s take a closer look at “Agency Operations”, the fundamental cost of operating State government.  The FY16 Enacted Budget included $8.20 billion for Agency Operations.  The Governor’s FY17 amended budget requested $8.31 billion for Agency Operations, compared to the Senate’s budget of $8.07 billion, and the House’s budget at $8.17 billion.  The Conference Committee landed on a compromise budget containing $8.21 billion for Agency Operations, again above the level approved by either chamber, a $13.6 million increase over the FY16 Budget. 

The Governor’s Plan to fund future budgets is similar to the plan being promoted by the AFL-CIO, GCI and others, calling for a combination of budget cuts, new taxes, and restructuring of the Permanent Fund to pay for State government.  Unfortunately, the data is clear, there has been no real progress made this year in reducing the fundamental operating cost of State government in Alaska. 

Many are in a very big hurry to lock down a funding source for big government, despite failing to make real, sustainable reductions in the fundamental cost of State government.  Budget cuts were supposed to be part of the solution. Despite this failure, many continue to call for new taxes (HB 4001), and a restructuring of the Permanent Fund (HB 245).  We are rapidly approaching a vote on both. 


Until we demonstrate responsible government spending, there should be no new taxes imposed on Alaskans and no change to the Permanent Fund! Alaska spends almost 3 times the national average per capita on state government. Shifting the burden of big government on Alaskans is the wrong solution.  We must fix government spending first!

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