Capitol Live: Economy to take a hit, no matter the budget outcome

3 p.m.

Chief Economist Edward King from the Office of Management and Budget presented a data-driven outlook on the situation the state — and the governor drafting his budget — faces today.

During his presentation at the Hangar Ballroom to the Juneau Chamber of Commerce, he outlined the revenue forecast for Alaska for the next few years based on the expected price of oil, and said no matter which way you look at it, the economy is going to take a hit.

If the governor cuts state funding, it will affect jobs, which in turn will affect different aspects of the economy. But if legislators look at making new taxes to make up for the difference instead of cutting spending, those also will affect the economy negatively in their own ways.

“Every lever you pull is going to impact different people and different regions differently,” he said. “There are tradeoffs we have to make between the public and private sector, and between current and future generations.”

But he said a change needs to be made structurally, because the decline in revenue from oil is not going to go away. He said in general, based on trends, the price of oil is not going to return to $100 per barrel anytime soon. While certain unforeseen events might change it for a time, the supply and demand predictions remain constant over the next few years.

“It’s not just a change, a cut to a budget for this year, then we’ll get it back next year, it has to be structurally,” King said. “We don’t know how it’s going to play out (at the Capitol). They have a real big problem to solve and they’ve known that it was coming for the past four years.”

— Mollie Barnes

2 p.m.

A presentation to the Senate Finance Committee this morning went over the financial effects of the opioid epidemic in Alaska. Figures from the McDowell Group, as read by Sen. Natasha Von Imhof during the meeting, are as follows:

• The overall economic impact to the state is $1.2 billion per year.

• The state’s spending on opioid treatment in 2018 was over $70 million.

• Of that total, the Department of Health and Social Services spent $60 million.

This epidemic goes beyond statistics. Von Imhof started the meeting off with a personal anecdote, saying she knows a family who’s grieving the loss of a 42-year-old father of three to an accidental drug overdose recently.

“They’re planning his funeral now,” Von Imhof said, “so this is very real.”

— Alex McCarthy

11:02 a.m.

Representatives at an informational meeting clashed with the Budget Director Donna Arduin over technicalities defining a proposed $20 million dollar cut to education in the governor’s proposed supplemental budget.

Some representatives pointed out that school districts plan their budgets around promised money from the legislature that has been made law. Not one representative spoke in favor of the proposed cut, or said they planned to endorse it.

Rep. Neal Foster, D-Nome, said he doesn’t think the proposed cuts will make it through legislature into law. So representatives were asking the Office of Management and Budget whether or not the governor would approve a version of the law that did not incorporate these cuts.

Since the $20 million was supposed to go out to school districts in the end of January, Foster also worried that when a supplemental bill does pass, if it did not cut the $20 million, how fast that money would be able to get delivered to school districts.

“We’re halfway through the fiscal year, a lot of (those districts) have probably already spent that money,” Foster said.

He spoke in hypothetical and asked if the legislature approved a supplemental bill without the cuts in 10 days, would the governor’s office be able to get that money to the districts in 20 days? But in an interview with Empire after the meeting, he admitted it probably wouldn’t happen that quickly, considering the House is still not organized, and cannot pass legislation until it does so.

Foster said representatives are also worried about the $30 million that was proposed for the next fiscal year, in the previous legislation that was passed with the one time funding of the $20 million for schools. He said he hopes that the fight legislators are giving the office over cutting $20 million this year will discourage the OMB office from seeking to eliminate the funding for the $30 million next year in any previous budget bills they propose.

— Mollie Barnes

10:35 a.m.

Rep. Neal Foster, D-Nome, told Office of Management and Budget Director Donna Arduin the $20 million education cut, which was proposed in Senate Bill 39, sends a “bad message” to Alaskans. SB 39 is Gov. Mike Dunleavy’s supplemental budget bill. The $20 million for education that has been a key topic of discussion today, was part of a bipartisan budget deal made in May 2018. It deals with the current fiscal year.

“I for one can’t support that,” Foster said of the proposed cut, during an informal hearing in the House Finance Committee room that is ongoing.

Foster added that he thinks he’s seeing a similar sentiment from the representatives who are present.

It is accepted among legislators that budget cuts are imminent this year with Dunleavy proposing a $1.6 billion budget cut. Rep. Sarah Vance, a Homer Republican, said it’s the job of the legislature to find other areas of the budget to cut.

“I hope what we can do is find another way to meet this request,” Vance said.

The meeting is closing now.

—Kevin Baird

10 a.m.

The House floor session scheduled for 10 a.m. has been delayed until “a call of the chair” is made. Meanwhile, I’m here in the House Finance Committee room with about half of the Alaska House of Representatives. Office of Management and Budget Director Donna Arduin is giving an informal presentation on the Senate Bill 39, which is Gov. Mike Dunleavy’s supplemental budget bill.

— Kevin Baird

9:40 a.m.

Office of Management and Budget Director Donna Arduin is giving an informal presentation about Gov. Mike Dunleavy’s supplemental budget bill, Senate Bill 39, in the House Finance Committee room along with Lacey Sanders. Most of the questions are concerning the proposed $20 million cut to education. Supplemental budget bills are generally used to move unspent money from one department to shore up the budget of another department.

Rep. Sara Hannan, D-Juneau, hounded Arduin over requesting the legislature to redact the promised $20 million from school districts, asking Arduin if there is any money left in the governor’s budget that could similarly be cut.

Arduin responded, saying they are working on a report and her department will be “giving you a full list,” of funds unspent in Dunleavy’s office.

Rep. Tammie Wilson, R-North Pole, disagreed with Arduin on whether or not that $20 million of education funding had been used.

Arduin had said the money had not been spent because it has not yet been given out. Wilson countered saying school districts had entered into contracts already based on the promise from the legislature they would receive that money.

“To say that it wasn’t encumbered is not a true statement,” Wilson said.

School districts are separate entities from the state legislature, and Arduin said, “We can’t micromanage them.”

— Kevin Baird

8:55 a.m.

It should be an interesting day at the Capitol. At 9 a.m., Office of Management and Budget Director Donna Arduin and Finance Director David Teal are speaking at an informational House session about the supplemental budget.

To refresh you on a few factors at play in that meeting: The supplemental budget is not the upcoming 2020 budget that will be released by next Wednesday. The supplemental budget is for the first half of this year, and Gov. Mike Dunleavy introduced two bills earlier in session that move money in that supplemental budget to public safety and earthquake relief while shifting $20 million away from education.

Read our full story on that here.

These two have spoken together once before, at a Senate Finance meeting early during session. While Arduin — a Dunleavy appointee — spoke optimistically about the state’s budget situation and explained her somewhat unconventional approach toward cutting the budget, Teal spoke frankly and contradicted Arduin’s optimism. He referred to a budget “death spiral” that can result from continuing to use savings to balance the budget.

You can read our full story on that here.

Lastly, you’ll recall our pair of stories in the past week about Arduin’s past. She has a history of slashing budgets in multiple states, and some lawmakers have questions about her ties to the private prisons industry as well. It’s quite the rabbit hole, and we went a little ways down it in this Sunday story.

— Alex McCarthy