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House's budget claims conceal retirement spending

Two-thirds of state agencies see less money, retirement payment uncertain

Posted: March 16, 2014 - 12:10am

Saddled with a grim revenue forecast, the Republican majority in the House of Representatives passed a budget last week that can be defined with a single word: less.

But not as much less as the approved figure implies — $9.148 billion doesn’t include the state’s contributions to the public employees’ and teachers’ retirement systems, and those are no small figures.

If the state doesn’t use its savings to pay down the unfunded liability in those systems, it is expected to make a scheduled payment of just north of $700 million — money not included in most budget figures.

That means the real budget reduction from last year to this year is closer to 6 percent than the 13 percent trumpeted when the budget was passed.

“This is a conservative budget that proposes to spend less than the current year,” Rep. Alan Austerman, R-Kodiak, said during the floor presentation of the budget Thursday. “We have to separate our wants from our needs and prioritize state services so that we can slow the draw from our savings accounts.”

Republican Gov. Sean Parnell has proposed spending $3 billion from savings to pay down the unfunded liability of the retirement systems, which are proving more costly than expected. If Parnell’s proposal goes forward, the state’s annual retirement payments would fall — but at a steep cost.

Adding $3 billion for the retirement system would mean using nearly a third of the state’s financial reserves (not including the Permanent Fund) in a single year.

“Revenues are not forecasted to cover our expenditures for the next several years, so this situation could be called our ‘new normal,’” Austerman said.

The budget includes cuts to 12 of the 18 state agencies, and only two departments — Administration and Law — saw increases of more than 1 percent. Six departments saw cuts greater than 1 percent.

A $2 million reduction in state funding for the Alaska Aerospace Corporation’s rocket launch facility in Kodiak resulted in the Department of Military and Veterans Affairs being the biggest loser, percentage-wise, at 6.3 percent.

A Democrat-backed amendment that would have slashed the facility’s funding by another $2 million was one of 11 amendments the Republican majority rejected Thursday.

It was the second year in a row Republicans took a hard stance on reducing state spending. The state had experienced about a decade of annual growth in the operating budget growth, Rep. Cathy Muñoz, R-Juneau, said.

“Starting last year we really tried to take a closer, more serious look at all of the departments looking for efficiencies and savings to stem that growth, and we’ve been successful in doing that,” she said.

While there is optimism that new activity on the North Slope will lead to increased revenue in the future, “we can’t really count on that until the production is actually brought online,” Muñoz added.

Amid the myriad reductions, the Department of Education and Early Development was not a victim. Instead, lawmakers increased that department’s funding by about half a percent, or just under $8 million.

That increase does not factor in a number of possible increases to education funding expected near the end of session.

Democrats tried to bump schools funding by about $100 million via an amendment, but that effort failed on the floor.

“That should have passed, or somebody should have said we’re going to do the equivalent through a BSA statute,” Rep. Les Gara, D-Anchorage, said of the amendment. “Instead, we got, ‘Trust us, we’re not going to tell you how much we’re going to put into the base student allocation or even if it’s going to be enough to cover next year’s cuts.’”

Legislators also opted to pull just over $9 million — about 5 percent — out of the Department of Labor and Workforce Development.

Gara went on to call some of the cuts “shortsighted” because they will lead to increased costs down the line. A Republican finance subcommittee co-chair said the same on the floor.

“Need is always going to outpace the amount of money available,” Rep. Mark Neuman, R-Wasilla, said.

Later in the debate, he added that the cuts will lead to job loses which, in turn, will lead to costly social problems like drug and alcohol abuse and domestic violence.

“We have to allocate limited resources to cover unlimited needs and wants,” said Rep. Dan Saddler, R-Eagle River. “This budget does that very responsibility.”

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