2015 End of Session Report
Legislative Consultants in Alaska (Wendy Chamberlain)
May 6, 2015
Today is May 6, 2015….. 16 days past the scheduled adjournment date and the Legislature remains in a special session. Governor Walker wasted no time issuing a proclamation calling the Legislature back into a special after they failed to reach agreement to fully fund the FY 2016 operating budget. The Governor listed three key issues he wants addressed; the operating budget, Medicaid expansion/reform and a bill dealing with sexual assault prevention and awareness in school (Erin’s law). The Legislature recessed two days later announcing both bodies would return to Juneau May 12, 2015 to take up the budget and possibly Medicaid. Meanwhile, the House and Senate Finance Committees continue working on the budget but no compromise has been reached at this time.
The first session of the 29th Alaska Legislature adjourned at 7 PM on Monday, April 25, 2015, six days after the scheduled adjournment date of April 19th. The dramatic dropped in oil prices posed significant challenges for both Republicans and Democrats in the Legislature. Facing a $3.9 billion shortfall for FY 15 and $3.2 billion for FY16, the Republican led Senate and House reduced the operating budget by approximately $850 million over current year spending. Minority members in both bodies strongly objected to the size of the reductions to Education, Medicaid, union contracts, domestic violence, Alaska Marine highway system and the University of Alaska. The state currently has approximately $12 billion in the Constitutional Budget Reserve (CBR); however accessing the CBR requires a 3/4 vote by the members of both bodies. The Senate has that number in their majority, but the House is 4 members short. So far, the 13-member House Democratic minority remains steadfast in their demands to have funding restored to the operating budget and approval of Medicaid expansion before supporting the budget.
Alaska has not had an income or sales tax since the early 80’s and in fact we have a “negative tax”, giving each member of the public a dividend each year from oil royalties. The public also seems loath to accept any taxes or giving up their dividend until state government has been reduced to a more sustainable level. While the reductions this year are significant (over $850 million) most of those cuts are the “low-hanging fruit” that won’t cause much reaction. Budget cuts will be MUCH more difficult when the legislature returns next year. Their challenge will be making reductions that don’t cause the state’s economy to go into a tail-spin.
The Governor introduced his budget with Medicaid Expansion funding included, however the Legislature removed this funding and inserted language stating the Administration cannot take action on Medicaid without full legislative approval. The Legislature wants to see major reforms within the Medicaid program before looking at expansion. Both the Legislature and Administration are procuring consultants to assist in the analysis of expansion and reform.
While much attention was devoted to the state’s fiscal crisis and reducing spending during the Session, both the Legislature and Governor will be looking at new or expanded revenue sources over the Interim. The Governor has stated that there may likely be a Special Session devoted to this topic as well.
In July, 2014 oil prices averaged $127/barrel, however prices plummeted to below $60/barrel this year (2015). The State forecasts $2.2 billion in unrestricted general funds for both FY 15 and FY 16. That represents an approximate $4.0 billion dollar shortfall for the two fiscal years.
The Legislature made cuts in almost every department, some as much as 34%. Among the largest cuts are Education, Health and Social Services, Community Jails, Revenue Sharing, Alaska Marine Highway, DOT maintenance and the University of Alaska. The cuts represent approximately $830 million decrease in spending. At this level the Statutory Budget Reserve has been depleted and a draw from the Constitutional Budget Reserve (the State’s savings account) is required to balance the FY16 budget.
Municipal Revenue Sharing
Municipal Revenue Sharing was funded at approximately $53 million, however this amount did not capitalize the fund (essentially forward funding). Communities will see a reduction of approximately 7 percent in FY 2016 over their FY 2015 disbursement. The bleak revenue picture is likely to continue to impact revenue sharing and without forward funding this account will be drawn down in 3 years.
The most controversial issue this session was education funding.
The total reduction to the Education budget was significant – $49 million. This translates to approximately $192 in the base student allocation (BSA). In addition to the cuts primarily outside the foundation formula funding of $32 million proposed by the Governor (pre-kindergarten programs such as Best Beginnings, Parents-as-Teachers, and other programs like ANSWERS, the Online with Libraries, Live Homework Help, Statewide Literacy Program — $5 million dollar broadband expansion) the Legislature cut an additional $16 million from the Base Student Allocation. To help offset the deficit the forward funding of education has also been discontinued in the current budget.
A Legislative report on school funding will be released in the coming months and will be the topic of future discussions on how the state funds education.
Ketchikan Gateway Borough Lawsuit on Local Contribution to Education Funding
Yet to be settled is the litigation brought by the Ketchikan Gateway Borough. Fairbanks North Star Borough recently filed an amicus brief in support of Ketchikan. The Ketchikan suit claims that the State unfairly discriminated against 1st Class cities and organized boroughs by requiring a local contribution to education funding. Last year, the State appropriated $1.4 billion to fund education; $230 million of that amount came from the local contribution. In January, 2015 the Superior Court agreed with the Ketchikan Gateway Borough – the state’s required local contribution for public education violates the Alaska Constitution – in essence a dedicated tax precluded by the Alaska Constitution. Governor Walker is appealing the decision to the Supreme Court. Should Ketchikan prevail, the Legislature will have to fill an approximate $230 million hole in funding.
Capital spending was reduced considerably from last year. The $1.5 billion Capital Budget contains approximately $122 million in unrestricted general funds, $117 million in other and designated general funds, and $1.3 billion of federal funds. Of note, the last school construction project required under the Kasayulie Settlement was included by the Legislature for Kivalina in the amount of $43 million. School Major maintenance funding was added at $2.6 million.
Renewable Energy Project Grants through AEA for Round 8 projects were funded at $11.5 million. Village Safe water and wastewater infrastructure projects were funded at $51.5 million state and federal funds. Ambler Airport Improvements project received $2.5 million
Federal receipt authority for the Juneau Access and Knik Arm Bridge Crossing projects was added back in the budget. Earlier this year the Walker Administration issued an Administrative order halting six mega projects from making any new expenditures. This federal receipt authority allows these two projects to continue…for now. Kotzebue Cape Blossom Road was appropriated $33 million.
New Revenue Measures:
While the Session primarily focused on reducing spending, both the Governor and the Legislature stated they intend to devote a considerable amount of time during the interim to looking at expanding new and existing revenue sources. Several pieces of legislation have already been introduced and could become part of the conversation:
- HB 174 Oil and Gas Production Taxes; Credits (SB 96)
- HB 182 Individual Income Tax and Tax Credits
- HB 191 Oil and Gas Corporate Taxes
- HB 208 Community Revenue Sharing
- SB 97 Employment Tax for Education
In addition to the tax legislation already introduced, two separate measures have been offered to begin the discussion of using Permanent Fund Earnings for state operating expenses.
- HJR 2 Constitutional Amendment: Permanent Fund Percent of Market Value (POMV)
- SB 114 Deposits into the Dividend Fund
Out of the 329 bills introduced –43 passed and are awaiting action by the Governor. Of some note were:
HB 123 Marijuana Control Board
- The bill creates the Board to regulate and enforce commercial or retail marijuana operations in Alaska as provided in the Citizen’s Initiative.
HB 146 Municipal Tax Exemptions
- Allows a local government to adopt an optional abatement for all or a portion of a subdivided portion or property and set the terms of paying the tax abatement.
- Allows for a tax deferral on certain residential property deemed to be deteriorating to be determined by the municipality. Current statute allows for tax deferrals on non-residential commercial property and is unclear as to multiple unit complexes.
- The intent is to incentivize rehabilitation and redevelopment of deteriorated properties.
HB 105 – AIDEA Interior Energy
- Changes existing state law to allow the Interior Energy Project to purchase LNG from any region, including Southcentral Alaska, repealing limitation to purchases from the North Slope.
- Expands and updates AIDEA’s limits for all of its’ project and program financing.
HB 158 Refined Fuel/Motor Fuel Tax
- Creates a $.0095 cent surcharge per gallon of refined fuel accessed at wholesale distribution level.
- Establishes a viable long-term funding source for spill prevention services.
- Uses existing departmental resources (motor fuel, and av gas tax structures) to implement.
- Exemptions include:
- state agencies
- fuel sold for use in jet propulsion aircraft operating in flights to foreign countries or that continue from foreign countries
- liquefied petroleum gas
- aviation fuel
- fuel sold between qualified dealers.
- Adds the refined fuel surcharge to AS 43.40.010(e) that directs 60% of the proceeds of revenue from the refined fuel surcharge and motor fuel tax back to the municipalities who own, operate, or lease an airport.
HB 176 Repeal State Employees Salary Increase
- Denys increases that were to take affect in the next fiscal year for employees not covered by bargaining contracts. Language was also passed in the budget to remove salary increases for covered state employees.
SB 34 PCE Endowment Fund Investment
- Allows the Fund to be managed with and investment strategy to better protect the Fund with a less riskier investment mandate (removing the 7% required return).
SB 39 Repeal Film Production Tax Credit
- Repeals the film production tax credit program for any new applicants as of June 30, 2015.
SB 43 Immunity for Fire Department & Members
- Provides that departments or employees may not be civilly liable for an act or omission unless intentional misconduct or gross negligence.
SB 46 Muni Bond Bank; Regional Health Organizations
- Authorizes the Alaska Municipal Bond Bank to finance up to $250 million for regional non- profit health organizations construction project. Last year the Legislature authorized the bond bank to participate in University of Alaska facilities. SB 46 would expand this authorization to nonprofit health facilities to assist in providing new health care facilities. SB 46 was expanded to include joint action agencies to provide public utilities including hydro power projects.
SB 63 Naming the State Library (Richard Foster Reading Room)
- Names the new state library in Juneau after Father Andrew P. Kashevaroff. The public reading room will be named the “Representative Richard Foster Reading Room.”
SB 64 School Bond Debt Reimbursement (allowed to become Law Without Signature)
- The bill suspends the school bond debt reimbursement program for 5 years from January 1, 2015 to July 1, 2020. The retroactive date of January 1, 2015 failed to be adopted. SB 64 will become effective 90 days
SB 71 Vaccine Certification for Pharmacists
- Allows licensed pharmacists to administer vaccinations. May be particularly helpful in areas of the state where a physician is not readily available.
HB 132 – AGDC Support of Natural Gas Projects
- Clarified that the Alaska Gasline Development Corporation (ADCG) focus on the AKLNG project as directed under SB 138.
- Prohibited AGDC from creating competing projects; Alaska Stand Alone Project (ASAP) remained the back-up project. The ASAP is heavily supported by Governor Walker and his Administration.
Bills of note that did not pass, but will remain available for next Session:
With Prop 2 passing in November personal use and possession of 1 oz. of marijuana became legal on February 24, 2015. The Legislature held multiple hearings on decriminalization, regulation, and municipal oversight during the Session. While HB 123 – creating the new Marijuana Control Board passed, several other bills remain in committees to be taken up next year.
HB 79 and SB 30 were introduced to decriminalize the possession of up to 1 ounce of marijuana as approved by voters in November. The Legislature had intended to pass the bill prior to February 24th, however neither bill has passed out of it’s own body.
Commercial Regulation –
HB 75 was introduced by the House Community and Regional Affairs Committee to provide more clarity to the role of local communities and municipal control in the regulation of retail or commercial marijuana.
Creation of Regulatory Structures –
HB 133 and SB 62 were introduced to further define areas of regulation for commercial or retail marijuana such as marketing, licensing, packaging, labeling, testing and serving sizes of products such as edible marijuana.
HB 59 was introduced by Rep. Seaton to allow for a delay by no more than a year, the promulgation of regulations for commercial or retail marijuana.
Medicaid Expansion has been the topic of many presentations before various committees this Session. The Administration’s budget contained provisions allowing for Medicaid expansion and authorizing the state to accept $145 million in federal funding while cutting some $6 million in state funding.
The Administration anticipates approximately $6.6 million in state savings would be realized by new federal Medicaid funding. Of that savings, $4 million is expected to come from the Department of Corrections budget for health care costs for inmates. The rest of the savings would come from Chronic and Acute Medical Assistance and reductions to the mental health provider grants, approximately $1.5 million.
The Legislature requested the Governor introduce a bill to expand the Medicaid program and offer reform measures to the existing program. Medicaid currently costs approximately $600 million annually.
SB 78 and HB 148 Medicaid Expansion bills – and HB 190 and SB 74 Medicaid Reform bills – are all in their respective Finance Committees.
HB 148 Medical Assistance Coverage; Reform
- Authorizes the state to expand the Medicaid program and engage in Medicaid cost containment reforms including expanding the use of waivers, pilot projects, and expansion of telemedicine practices.
- Allows for a “1115 Waiver” that gives the state flexibility to design it’s own Medicaid program. This waiver will allow the state to increase utilization of tribal health services and allow these organizations to take over management of numerous functions including transportation to and from rural areas. The state anticipates this will save $80 – $150 annually.
- 1915(i) and 1915(k) options allow the state to create its’ own guidelines for home and community-based services. This will allow the state to set thresholds for qualifications, service limits, and can include home health aides, adult day care, respite care and assistance for those with chronic mental illnesses.
Medicaid Provider Tax
HB 148 and SB 78 Medicaid Expansion — contain language directing the Department of Health and Social Services, after consulting with stakeholders, to submit to the Legislature not later than January 25, 2016, a proposal to authorize a provider tax up to the maximum extent allowed by federal law to offset some of the cost of the Medicaid program. The Department is directed to contract with an independent third party to advise the Department during the development of the tax proposal.
SB 74 Medicaid Reform/PFD/HSAS/ER Use/Studies
- Enhances fraud prevention and enforcement,
- Proposes to reduce the cost of the state’s home and community-based services with a new waiver program,
- Managed care pilot program for Denali Kid Care,
- Payment redesign to streamline the process, eliminate billing and payment irregularities and errors.
- Expands the use of telemedicine for primary and urgent care for Medicaid recipients,
- Directs the state to conduct studies for options to privatize the Alaska Psychiatric Institute, Alaska Pioneer Homes, and certain facilities of the Division of Juvenile Justice for cost savings. This also includes assessing the possibility of turning over certain DJJ facilities to local tribes in order to create a residential psychiatric treatment center allowing for it to be shifted from a general fund program to a Medicaid reimbursable program.
SB 6 – Daylight Savings Time
- Authorizes the Governor to petition the U.S. Department of Transportation to hold hearings in Alaska on whether Alaska should return to multiple time zones.
- If the USDOT does not act on that and leaves Alaska Standard Time in place, SB 6 would end the switch to daylight saving time for Alaskans as of Jan. 1, 2017.
SB 22 Motor Vehicle Registration Tax
- The bill reduces the percentage of the tax revenue the state can retain from the current 8% to 5%, thereby returning more tax revenue to the municipalities. If passed the bill would become effective July 1.
SB 76 Real Estate Brokers; Liability
- Makes clear the Legislature’s intent that civil actions against real estate licensees arising out of failure to comply with law are limited to the recovery of actual damages.
- Retroactive to January 1, 1991.
HB 47 PERS Contributions by Municipalities
- Alters the interest rate on delinquent payments to the PERS system for those municipalities whose populations decreased by more than 25 percent between 2000 and 2010.
HB 78 – RCA
- HB 78 was introduced to provide a standard for utilities in purchasing power from independent producers.
- Purchases of power from independent power producers is common in all other states and the price is set at the highest “avoided cost.” Alaska is alone among the states in allowing utilities to base their offers on the average cost.
HB 118 Muni Energy Improvement Assessments/Bonds
- The intent of the bill is to allow local governments to establish property assessed clean energy programs incentivizing property owners to finance for the purpose of energy efficiency upgrades.
- Allows businesses to finance energy efficiency upgrades to existing commercial businesses
- Allows municipal property tax assessment to be used to repay the municipal bonds.
HB 181 Prescription Without Physical Examination
- Provides that the Alaska State Medical Board may not discipline a physician for diagnosis, providing treatment, or prescribing a prescription drug.
- The prescription of a controlled substance is permitted, but only as long as an appropriate licensed health care provide is present with the patient to assist the prescribing physician.
- Remove the restriction that the prescribing physician be located in the state.
HB 183 North Slope Gas Project Property Tax; Assessment (SB 100)
- Provides a framework for the assessment of property tax on a North Slope natural gas project once the project begins to transport gas.
- Tax will be based on full and true value of property determined by adjusted original cost and annualized throughput
- Project is defined as gas treatment plant, gas pipeline, liquefaction plant, and marine terminal
- Property tax on existing North Slope oil and gas and pipeline properties would be unaffected.
- This legislation will likely be taken up in a much anticipated Special Session before January.
HB 185 Alcoholic Beverage Control
- A rewrite and reorganization of Title 4
- Changes the make-up of the Board
- Requirement for fee review not less than every 10 years
- Clarifies when fine and penalties may be imposed
- Creates a new endorsement system to expand the boundaries licensed businesses and accommodate special events
- Modifies the permitting system
- Allows for product tasting to authorize a holder of a beverage dispensary license to sell or dispense alcoholic beverages at a permitted tasting event.
HB 187 Railbelt Electrical Transmission Authority
- Establishes the Authority to develop a plan to manage the electric transmission system of the Railbelt Area;
- Consider the optimal output of electrical generation to meet the system load, subject to constraints; and consolidation of operations and tariffs;
- The Authority is a division of the Regulatory Commission of Alaska
- Prescribes the make-up of the Authority with 13 members and sets out its powers and duties.