By Meg Nordale, Regina Daniels and John MacKinnon
The House Majority started 2018 with a continuation of the national #MeToo movement and allegations of inappropriate behavior by two of the freshman members: Rep. Dean Westlake, D-Kiana, and Rep. Zach Fansler, D-Bethel. This resulted in their resignations in January.
In late April, Rep. Justin Parish, D-Juneau, faced similar allegations, and they are likely the cause of his announcement that he will not seek a second term. Parish brings the count to three freshman House Majority members who have resigned or announced a similar action this year.
In other highlights, oil reached $70 per barrel in mid- April and as of this writing in late May has bumped against $80. That will help, but it still does not quite get us there. Unrelated, the Department of Transportation & Public Facilities announced that four projects from the 2012 transportation bond issue that were suspended by Gov. Bill Walker will be restarted: Southbound Glenn Highway at Eagle River, Fairview Loop in Mat-Su, Old Steese Highway Reconstruction and the Fairbanks Wendell Avenue Bridge replacement. This could be related more to the price of oil creeping up or because this is an election year. The House and Senate agreed the 2019 Permanent Fund Dividend will be $1,600.
A short-term long-term fiscal plan
Since the first PFD checks were issued 36 years ago, we’ve talked of the need for a long-term fiscal plan for the state. After the price of oil plummeted in 2014, the Legislature began working diligently toward that end but has been unable to get agreement on getting to “Yes” — getting to 11 votes in the Senate and 21 votes in the House on just what that plan should be.
AGC’s position has been three-pronged: Some additional revenue is needed; further cuts in state spending are necessary; and a structured draw is needed from the Earnings Reserve Account, or ERA, of the Permanent Fund. Like the Legislature, AGC has found it difficult to agree on details among its members.
A hard-fought compromise was finally reached on SB 26, the so-called Percent of Market Value (POMV) draw from the ERA, outlining how the state will draw from Permanent Fund earnings to pay for spending. For the first time in state history, lawmakers will draw on the fund’s earnings for government operations.
The proposed compromise would use 5.25 percent of the fund’s average value over the past five years. This rate would remain in place for three years. Afterward, the percentage falls to 5 percent.
The draw is estimated at $2.8 billion with $1 billion to pay for the $1,600 dividend, leaving about $1.8 billion available for the General Fund. That, combined with expected revenues of $2.2 billion, leaves a gap of more than $600 million, which will have to come from the Constitutional Budget Reserve, or CBR. This leaves about two years of budget backfill from the CBR before we’ll need a major new revenue source.
Unlike previous versions, this does not set a reduced amount for the dividend, instead keeping it at the statutory calculation and as a part of the annual budget balancing act. Using the ERA to help fund government is a big step. Not setting a reduced dividend amount is kicking the can. However, a short-term plan with a POMV is better than no plan.
HB 331 — The Legislature agreed to allow for bonding to pay the state’s remaining oil and gas tax credit obligations. Under this proposal the state would issue bonds to pay back the remaining $800 million in cashable oil and gas exploration tax credits, plus up to $200 million expected to accrue in the next two to three years before the last credit program sunsets. The state would pay a slightly discounted rate, and bonds would be financed from the statutory minimum annual payment for the tax credits.
The previous uncertainty around these tax credit payments has led to projects being stalled and companies’ credit being frozen.
Along very mixed lines, it passed the House 23-15, and along caucus lines in the Senate.
The FY19 Operating Budget, House version, is $45.1 million higher than the governor’s amended budget. The Senate version of the budget did hold the line, but the House couldn’t say “No.” So much for trying to trim the cost of government.
The Capital Budget, as expected, did hold the line, even to the point of not including some special requests from the governor. Some of the key items included were:
There were several bills introduced that would have had consequences for our industry and for employers in general — some by the administration and some by individual legislators with support from the administration. As has been our policy, we worked to improve some that in their original form had some good public benefits. Some just couldn’t be fixed, so we worked to keep them from moving forward.
HB 79 - Omnibus Worker’s Compensation — Our efforts combined with the state chamber of commerce and the Alaska Workers’ Compensation Board helped keep this bill in check. What finally passed included favorable administrative changes and not those with significant effect on employers.
The final bill also added a Legislative Worker’s Compensation Working Group consisting of six members of the Legislature. Their task is to review the state’s workers compensation system, including procedures, compensable injuries, treatment guidelines, monitoring controlled substance prescription use and the burden of proof to support a claim. The working group is to consult with the Alaska Department of Labor and Workforce Development; the Department of Commerce, Community and Economic Development; the Medical Services Review Committee; organized labor; school administrators; and the state business community. They are tasked to produce a report by Dec. 1, 2018, the results of which are intended to be translated into a legislative package for submittal in the next legislative session.
The Senate Finance co-chair stated the Legislature’s desire to reach a more balanced approach to workers’ compensation legislation through the working group process. I’m confident she will make sure that happens.
An important takeaway from this and most sessions is not what passed but what didn’t pass. As mentioned earlier, we fix the ones we can, and those that we can’t, we try and stop.
HB 199 — The economy-killing Save Our Salmon bill, which would add layers of permitting for any project that affects any body of water (including a roadside ditch) that is or could be habitat for anadromous fish, had a well-deserved death in the House. Meanwhile the Alaska Supreme Court will decide on the constitutionality of the proposed Save Our Salmon Initiative prior to the Nov. 8 general election.
HB 255 – Occupational Licensing would clarify in statute what work could be performed with and without electrical or mechanical licenses. This would give government workers authority to tell contractors who could do what work on a project. We’ve fought this issue before.
Death Benefits and Unemployment Insurance — These would have adjusted benefits for past Consumer Price Index, or CPI, increases, and it makes sense to do so. The bills also had other provisions to increase these benefits well beyond just the CPI increases. These will no doubt be back next year, hopefully in a more acceptable form.
Oil & Gas Taxes — While there were several attempts, mostly from the co-chairs of the House Resources Committee, to again change or increase the oil tax structure, in the end they did not pass and the state will be able to evaluate the impacts of SB21. As you all know, continual instability of the tax structure can create uncertainty in the industry.
This is an election year, and we’ll see considerable turnover in both the House and Senate. There are some retirements, representatives moving from the House to the Senate and the possibility of incumbents not getting re-elected. In any event, it will be a new Legislature next year.
Meg Nordale and Regina Daniels are co-chairs of the AGC Legislative Committee. John MacKinnon is executive director of AGC.