ANCHORAGE — The 2016 legislative session(s) all but dispelled the cliché that if everyone is unhappy with the results of a negotiation the best solution was reached.
Despite turning a 90-day legislative sprint into a six-month marathon, Republicans did not get the state budget cut as deep as many wanted; Democrats were not satisfied with the cuts that were made to the oil and gas tax credit program; Gov. Bill Walker did not get to sign his fiscal plan into law; and Alaskans watched as their PFD was halved.
The result? Alaska still has a $3 billion budget deficit.
Walker ostensibly kicked off the three-session, 2016 Alaska political bout on Dec. 9, 2015, when he unveiled the New Sustainable Alaska Plan to balance the state budget within three years.
It included reinstituting a small state income tax, a suite of modest industry and user tax hikes, incremental budget cuts, aggressive reductions to oil and gas tax credits and at the center of it all was a proposal to channel part of the Permanent Fund’s annual investment earnings to pay for government services.
Seemingly everyone in Juneau criticized parts, or most, of the plan, but the governor was also widely commended for his willingness to draft a comprehensive solution with inherently unpopular parts.
Shortly after the regular session started in late January it became clear the dominant issue would be Alaskans’ favorite: oil taxes.
House Bill 247, the tax credit legislation, went through nine distinct iterations before passing in mid-June during the year’s first special session. The final version phased out the refundable tax credits for companies’ capital expenses in the Cook Inlet basin, but did not cut the North Slope credits as much as the administration and many in the Legislature wanted.
HB 247 did, however, once again solidify a group of moderate Republicans and rural Democrats caucusing with the Republican-led majority into their own “Musk Ox” caucus, which first coalesced in 2015 to stop Republican leaders from using Permanent Fund earnings to pay for the budget.
Siding with the Democrat minority on the oil tax issue, the group in 2016 was able to get an aggressive version of HB 247 through the House after a prolonged stalemate, only to see the Senate send back a tamer version that passed by one vote during concurrence.
That one vote was Republican Rep. Mike Hawker’s, who flew in from Anchorage after being absent for much of the session as he received cancer treatments.
All the while, the critical Permanent Fund legislation moved slowly along.
A compromise version of the governor’s bill — which received less than half the number of hearings as HB 247 and looked more like a proposal from Sen. Lesil McGuire — was revealed mid-session after closed-door negotiations between legislators and the administration.
Shortly thereafter, Walker held a rather unique question-and-answer forum during which he and his cabinet members took questions from legislators on the new proposal.
The Senate passed the Permanent Fund bill in early June, approving about $1.8 billion in Fund earnings to pay for government and generally setting PFD checks at about $1,000 for the foreseeable future.
Despite a months-long campaign by a broad coalition of business and labor groups led by GCI founder Ron Duncan to support the Permanent Fund measure, it died in House Finance Committee by a 5-6 vote about a week later.
The close committee vote ended up with Democrats and Republicans on both sides of the issue. Numerous legislators on both sides said their constituents were not comfortable with employing the Permanent Fund to help with the budget if other options, such as more cuts or increased oil taxes, did not go along with it.
As June ended Walker made good on a threat to cut the PFD (more on that later) before signing the state budget, part of nearly $1.3 billion in vetoes, including $430 million in oil tax credit payments, he made to preserve savings absent a fiscal plan.
He called the Legislature back into session once more after a break around the Fourth of July holiday and asked Alaskans to remember how their legislators voted on fiscal issues during the then-upcoming elections. The governor walked back his statement born of frustration slightly after accusations of improper use of his office for campaign activities that prompted Rep. Tammie Wilson, R-North Pole, to file an official complaint over the comments.
With a budget passed and the oil tax issue resolved, for the year anyway, the July session was short-lived and the lawmaker adjourned after just a week.
In the midst of the fiscal soap opera, the Legislature did manage to pass major reforms to the state’s Medicaid program and criminal justice practices, both of which were signed into law.
NOTABLE HAPPENINGS, in brief:
• PFD vetoed
In June, Gov. Bill Walker partially vetoed what was going to be a $1.36 billion transfer from the Earnings Reserve to the Dividend Fund, slashing the amount in half, to $666.3 million. This was the first time that an Alaska governor had altered the appropriation used to distribute the Permanent Fund Dividend, and it did not make him popular. Tens of thousands of messages on social media indicated how upset and outraged residents were to receive half an anticipated dividend this year.
• House changes hands
Alaska Democrats disappointed with the national results of Election Day tallied enough victories on the state level to take control of the state House for the first time in years. Now Alaska has a Democrat-led House, a Republican-dominated Senate and a governor sans political affiliation going into one of the most crucial sessions in the state’s history.
• State takes over AK LNG
Gov. Bill Walker decided in February that the state of Alaska would lead the $45 billion-plus Alaska LNG Project. The state takeover has been met with bipartisan skepticism in the Legislature and how it is treated in the upcoming session could go a long way toward determining how much more work the state does on the long sought-after “gasline.”
• Blood Bank of Alaska draws blood, scrutiny
The Blood Bank of Alaska became the subject of public scrutiny after moving into its new building in February. Word surfaced that BBA was exporting 100 units of blood a week to LifeStream, a California blood bank. Such agreements are common within the industry of blood banking, but blood bank employees filed two complaints to the U.S. Food and Drug Administration, each claiming that the export agreement caused a shortage of blood on the bank’s shelves and caused a host of operational problems, including overly aggressive donor recruitment and unethical or illegal blood drawing practices. Blood bank leadership denies there have ever been any blood shortages. BBA provides blood for 22 of 25 Alaska medical centers, and each has filled its orders in a timely fashion.
• Anchorage LIO saga continues
Legislators already under pressure from all sides to fix the budget situation tried to rid themselves of their politically unpopular Downtown Anchorage Legislative Information Office building. The Legislative Council voted last December to move out of the six-story offices — custom-built for the Legislature just a year earlier — unless a solution much cheaper than the in-place $3.3 million per year lease could be reached with the building owner group. The council agreed to buy the building for $32.5 million early in the year but Gov. Walker threatened to veto the deal if it made to him in the capital budget, saying it would be inappropriate for the state to spend the money while at the same time cutting services to reduce the budget deficit. After the council’s justification for the original LIO deal was deemed illegal in state Superior Court, Legislative Council chair Kodiak Sen. Gary Stevens found another way out in the form of buying Wells Fargo Bank’s Midtown Anchorage offices for $11.8 million.
Walker was not happy but did not veto the appropriation, which was by far the largest discretionary item in the 2017 fiscal year capital budget.
Both the LIO owners, led by Anchorage developer Mark Pfeffer, and the Florida-based bank that financed the building said they would sue the Legislature if they left. Legislators moved out in early October. In November the council denied an appeal by the building owners to the council’s decision to walk away from the lease.
• First cannabis sale
As eight more states legalized recreational marijuana in the Lower 48 on Election Day, the Alaska cannabis industry is taking its first steps into the retail world. On Oct. 29, nearly two years after Ballot Measure 2 legalized adult use of cannabis in Alaska, the retail store Herbal Outfitters opened in Valdez, a small town a half day’s drive from Anchorage. This marked the first retail store opening after a helter-skelter year of big investments of time and money for cannabis stakeholders without any business to recoup the expense.
Since then, stores have been popping up one by one across the Last Frontier from Fairbanks to Juneau.
• Production rises as prices fall
Alaska got some much-needed good news in early July when state data showed a rare increase in North Slope oil production. Slope producers pulled 3 percent more oil during the state 2016 fiscal year versus 2015, the first such increase since 2002 when ConocoPhillips’ large Alpine field first came online.
• Insurance market shakeup
In the face of a statewide Medicaid expansion, Alaska’s individual insurance market closes 2016 as a shell of its former self, gutted by the Affordable Care Act’s backfires and towing a $55 million price tag for a state with the highest individual premiums in the country.
The Affordable Care Act, or ACA, drew high-risk patients away from the Alaska Comprehensive Health Insurance Association with its lower-cost, federally subsidized plans.
Rates for individual insurers spiked as much as 40 percent in Alaska after the change, leading to an average statewide plan of $700 per person per month. This makes Alaska’s rates the highest in the nation, which averages $468 per person per month.
Unable to stand the losses, Moda Healthcare dropped out of the Alaska market in May, leaving Alaska with only one individual insurance provider facing yet another year of rising premiums.
In May, the Legislature forwarded a reinsurance bill to Gov. Walker that will stave off steep premium increases — at a $55 million cost to the state — at least for two years.
Reinsurance is a form of subsidy for insurance providers. Insurers will submit claims to the Alaska Division of Insurance, then receive a direct payment from the state to dampen the costs, drawn from an insurance tax.
State Medicaid savings could offset some of the expense.
In June, Walker signed a Medicaid reform bill designed to expand coverage areas as well as save the State of Alaska money by funneling in more federal dollars.
The Department of Health and Social Services estimates the changes to the Medicaid system will save the state more than $31 million right away in fiscal year 2017. Those savings are expected to increase to nearly $114 million per year by 2022 as the programmatic reforms are fully implemented.
The state’s Medicaid expense has grown more than 70 percent in the last decade, from less than $400 million in 2006 to nearly $700 million this fiscal year at a time when the state is running $3.5 billion-plus annual budget deficits. The federal government is contributing more than $1.1 billion to Alaska’s Medicaid program this fiscal year.
