Juneau Update

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Legislative Consultants in Alaska (Wendy Chamberlain)

January 18, 2015

What a difference a year makes.

If you spend a day in the Legislative building you will probably hear the same question asked numerous times -“How low did oil prices fall today?”    For many legislators, balancing next year’s budget seems like a daunting task.  The latest estimates show the state facing a $3.2 billion deficit in the next fiscal year.   However, before legislators can tackle next year’s financial challenges they must appropriate more than $3.5 billion to pay for the current year’s operating/capital budget deficit.  This year’s budget was based on a per barrel oil price of $104.

Governor Walker asked his department heads last month to give him a “quick initial assessment” of the implementation and impact of two levels of budget cuts, one of 5 percent and one of 8 percent.  The reports will not be made public until after Governor Walker releases his new budget plan due no later than February 18, 2015.  Governor Walker has made it clear; all options are on the table.    In a departure from recent years Governor Walker will deliver an extra speech to lawmakers at the start of the legislative session next week, a Thursday address on the state budget that will follow the traditional State of the State speech Wednesday.  The Governor wants to make the public aware of the dire fiscal problems facing the state and allow the public time to absorb the possible impacts. Past governors have delivered separate State of the Budget speeches, but none have done so since Frank Murkowski in 2006.  I will provide a budget impact analysis in my next report.

What options are available to lessen the impact?

The state has $12 billion in its’ budget reserve account, however unless significant reductions are made to existing programs the state’s reserves will be depleted within three years.  On a more positive note Governor Walker recently presented estimates to the Anchorage Chamber of Commerce that include stretching existing reserves through 2021 with a static budget.  By 2022, education spending will increase from $1.78 billion this year to $2.26 billion in FY 2022; Medicaid will grow from $760 million this year to $1.337 billion in FY 2022.  A static plan will put pressure on areas such as Education increases; rising health care costs and State Employee pay raises.

Most budget cutting scenarios center around “making it through” until 2024 when the gas pipeline is projected to be operational.  Estimates show the large gas pipeline and liquefied natural gas project will generate around $4 billion a year in new revenue.  Alaska is well positioned to make it through these challenging times.

Six megaprojects halted

Last week Governor Walker ordered a spending halt on six (6) megaprojects.  The projects include Knik Arm Crossing, Juneau Access Road, Ambler Road access, Susitna Watana hydroelectric dam, the small diameter pipeline and the Kodiak rocket/missile launch complex.

On January 9, 2015 the Dept. of Transportation released a proposed amendment to the State’s Surface Transportation Improvement Project. $50 million will be reallocation from the Knik Arm bridge project and $104 million from the Juneau Access Project.  The amendment requests authorization to spend this funding on 20 smaller projects in Whittier, Kenai, Prince of Wales, Anchorage and Mat-Su.

Pat Kemp, former Commissioner of the Dept. of Transportation was fired recently after he signed a letter stating that stopping these two projects would “trigger a financial penalty” from the Federal Highway Administration. Total money spent so far amounts to $72.9 million for the Knik Arm Bridge and $25.7 million for the Juneau Access Road.

 Industry spending continues on the North Slope

Despite falling oil prices state economists are optimistic oil companies will maintain or increase current capital spending levels.  State petroleum tax law requires producers to submit a three-year capital spending projection to the state.  These projections indicate spending could increase to almost $5 billion next year.  Cook Inlet producer’s investments have increased sharply.  In 2015 capital investment in the Cook Inlet will have doubled since 2011.

 Minimum Wage goes into effect

Some Alaskans will see an increase in their paycheck beginning February 28, 2015 when the new $8.75 minimum wage goes into effect.  Ballot Measure 3, which voters approved overwhelmingly sets the Alaska minimum wage at least $1 dollar above the federal minimum wage.

Worker Compensation rates see a reduction

The Dept. of Labor and Workforce Development recently announced workplace injuries dropped 46 percent last year. As a result of this decrease Workers’ Compensation premiums for Alaska employers dropped 2.6 percent this year.  An aggressive safety-training program implemented by seafood processors significantly reduced workplace accidents.

Medicaid expansion a high priority for Governor Walker

Newly appointed Health and Social Services Commissioner Val Davidson has a huge task, implementing Medicaid expansion in Alaska.  Davidson remains optimistic enrollment will begin in July, 2015, however the department must overcome significant technical problems that have plagued the system resulting in years of delays.  Governor Walker and Commissioner Davidson will need to persuade the Legislature to give the agency authority to accept federal Medicaid funds.  Legislators are open to considering Medicaid expansion but have expressed concerns over the start up costs ($8-12 million) that must be paid for by the state.

A look at the House of Representatives

This session there are eight (8) new faces in the House of Representatives.  The House comprises 23 Republicans, 16 Democrats and 1 NP.   Four (4) rural Democrats joined with Republicans to form a 27 (twenty-seven) member Republican led coalition.

The Senate organization

14 Republicans and one rural Democrat (Lyman Hoffman) will lead the Senate.  The Senate membership has a lot of budget experience; this will be very helpful given the budget challenges.

We look forward to seeing you all in Juneau soon.  If you have any questions please call our office in Juneau at 907-230-4308.

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