Capitol Report April 18

By Miles Baker
Associate Vice President Government Relations

Easter Sunday marked the 90th day of the session and the statutory deadline by which the legislature is supposed to conclude its business. It’s been clear for weeks that they weren’t going to hit that goal, and we've officially entered overtime.

The Alaska Constitution established the length of the regular session as “one hundred twenty days from the date it convenes.” That clock began ticking on January 17th when the legislature gaveled in. The 120th day takes us to May 17th, at which point the legislature has to take formal action to extend further into a special session. Several years ago, a public initiative established a 90-day legislative limit in statute, but legislators have found it difficult to finish in that amount of time and aren’t legally bound to do so given the greater constitutional limit.

So will the next 30 days be different than the first 90? Let’s hope so. One big difference is that most of the major pieces of policy legislation have been passed from one body to the other, so from a procedural perspective, both are technically in a position to begin the process of negotiating on the differences in legislation. The Senate has announced that it will be shutting down all committees except for Resources and Finance in order to focus on budget and revenue bills.

Last Wednesday Senate President Kelly communicated the Senate’s session priorities in a letter to House Speaker Edgmon. End game negotiations will take a number of forms, but much of it won’t be done in public. Conference committees will be appointed with representatives from the House and Senate in order to work out the differences within bills passed by each house. While these conferees are responsible for structuring the formal legislative agreement, policy decisions will be made through a form of shuttle diplomacy in a series of discussions between leadership teams and both majority and minority caucuses in an effort to reach a policy consensus that at least a majority of members from both bodies can support.

Everything centers on developing a complete fiscal package – a combination of spending and revenue that can garner enough legislative support to pass. On the spending side, the Senate wants to fund the FY18 operating budget at about $4.1 billion, about $280 million below the House’s level. Currently $22 million of that reduction comes from the university’s budget.

On the revenue side, both bodies have agreed in principle to spend a portion of Permanent Fund earnings to help fill the $3 billion FY18 budget gap. They disagree on exactly how much should be used and at what level dividends should be protected over the next several years, but for the first time ever, both bodies have passed legislation (SB 26) that would make a portion of earnings available to fund government. Regardless of where you stand personally, this represents a major legislative milestone. So what’s the sticking point? Taxes.

The House supports an income tax and modifications to Alaska’s oil and gas tax regime. Although the Senate has shown a slight willingness to consider scaling back cashable oil tax credits and Net Operating Loss deductions, they remain unequivocally opposed to an income tax. These are complicated and controversial policy issues that the House has sent to the Senate just in the last week. With the official game clock in overtime, it’s not clear that either subject can get a full and proper vetting.

University Budget Update

On April 6th the Senate held an extended floor debate on the FY18 operating budget (HB 57/HB 59) and considered more than 21 amendments. Senator Gardner offered amendment #14 which would have restored the $22 million, or 7 percent cut the Senate Finance Committee proposed to the university’s operating budget. Senator Wielechowski spoke in support of Senator Gardner’s amendment before it failed 5 -15 along party lines. 360 North’s coverage of the floor debate on the university budget amendment is in the last part of this clip and the beginning of this one. Currently, our budget stands at $325 million in the House and the Senate is at $303 million. If the Senate number holds during the conference committee negotiations, it represents a cumulative $75 million, 20 percent cut in the last four years. The next step is the appointment of a conference committee, which has been delayed until some of the larger fiscal differences between the two bodies are resolved. You can compare the House and Senate versions of the university’s budget here.

The Board of Regents held a special meeting last Thursday, April 13th to discuss the impacts this drastic budget cut will have on the university. You can access the Board of Regents contingency planning materials here.

The university has developed an advocacy campaign to bring attention to the critical decision legislators face on our budget. We encourage you to lend your voice to this effort and to communicate to the legislature the reasons you support funding the university’s budget at the $325 million level endorsed by the Governor and the House. You can access the campaign here. Share your e-cards on social media using the hashtags #SupportUA and #AKleg to raise awareness of this crucial decision affecting the University of Alaska.

Higher Education Scholarships in Jeopardy

On Monday April 10th, the Senate Finance Committee held its first hearing on SB 103 and took public testimony. SB 103 would eliminate the need-based Alaska Education Grant (AEG) and drastically reduce the highly successful Alaska Performance Scholarship (APS) program over the next four years. The legislation replaces the APS program with a competitively awarded “innovation” grant program for school districts. The legislature created the APS in 2011 to inspire our state’s high school students to prepare for and succeed in post-secondary education. It was designed to help reduce the number of high school graduates leaving Alaska to attend college. In the 2015-2016 academic year, 4,648 UA students benefitted from one of these programs, bringing $14.8 million in tuition revenue to the university. UA supports the continuation of the Alaska Higher Education Investment Fund which finances both programs and opposes the portions of SB 103 that would eliminate the AEG and substantially reduce the APS. During the hearing Saichi Oba, UA’s Associate Vice President for Student and Enrollment Strategy and Joe Nelson, UAS’s Vice Chancellor of Enrollment Management and Student Affairs both testified in opposition to the bill. You can listen to the hearing and access committee materials here. Alternatively, you can watch 360 North’s broadcast of the hearing here. The Board of Regents passed a resolution opposing SB 103 at its April 13th meeting which Chair O’Neill has transmitted to Senate and House leadership.

On Friday, April 14th, the Senate Finance Committee passed out a revised version of SB 103, which completely eliminates the Alaska Education Grant and phases out Tier 2 and 3 of the Alaska Performance Scholarship by February 1, 2021. Only Tier 1 scholarships will remain, which are available to high school graduates with a 3.5 grade point average or better and at least a 25 on the ACT or a 1210 on the SAT. While the new substitute bill is less damaging to the university than the original version, UA estimates the university could lose $4-5 million annually due to the elimination of 60 percent of existing APS scholarships and approximately $4.1 million through the elimination of the AEG, for a combined $8-9 million in potential revenue impact from lost tuition. You can review the estimated revenue impacts in the university’s fiscal note. You can listen to that final committee hearing and access committee materials here. Alternatively, you can watch 360 North’s broadcast of the hearing here.

A Little Bit of Positive News

On Friday April 14th at 1:30 p.m. the Senate Finance Committee approved a revised version of HB 141, which will extend the Technical Vocational Education Program (TVEP) for three years through 2020. The House had passed the bill with a five-year extension, the Senate Labor & Commerce Committee recommended just a one-year extension, and after some final negotiations between the sponsor Representative Fansler, the Department of Labor, the university and members of both Senate committees a decision was made to settle on a three-year program extension. This gives program recipients, including the university, adequate time to plan and manage the delivery of training, but also ensures that the overall program undergoes a top down review before it will be extended beyond 2020. You can listen to last week’s hearing and access committee materials here. Yesterday, the Senate passed the bill and it is on its way back to the House for concurrence.

On April 15th, Representative Tuck introduced HB 233 that would extend all existing Education Tax Credit (ETC) provisions through 2025. In addition to reauthorizing TVEP, one of the university’s other legislative priorities is obtaining an extension of the ETC, which is scheduled to expire in December 2018. The ETC was established to encourage private businesses to make charitable contributions to Alaska educational institutions. For a contribution made to UA to be eligible for the tax credit, the money must be used for direct instruction, research, education support, UA Foundation, facilities or intercollegiate sports. In 2015, UA received approximately $5.2 million in corporate donations. Representative Drummond, the House Education Committee chair, has indicated that she will introduce a similar bill and I expect Senator Coghill to introduce a Senate companion in the next several days.

Bills to Watch

Here are the key pieces of legislation to watch as the legislature negotiates toward adjournment:

SB 26 – authorizes an annual draw on Permanent Fund earnings reserve to fund government; passed by both bodies but major differences exist between the two versions. Slight differences in mechanics of draw and amount of annual dividend. The Senate version includes a provision to limit annual general fund appropriations to $4.1 billion annually adjusted for inflation. The primary sticking point is the House version includes language that makes the bill’s passage contingent on both HB 111, the House’s oil and gas tax bill, and a broad based tax generating at least $650 million annually becoming law. While the bill doesn’t specifically mention the House’s income tax bill, HB 115, that’s clearly the vehicle the House favors in the contingency. A conference committee has yet to be appointed, and is likely to happen this week.

HB 111 – oil and gas production taxes. Passed the House last Tuesday, April 11th and Senate Resource and Finance committee hearings began on Friday. Hearings are scheduled through Friday of this week.

HB 115 – income tax. Passed the House Sunday, April 16th. Imposes a tax on income of individuals, partners, shareholders in S corporations, trusts and estates beginning in 2019 based on your federal adjusted gross income. Estimated to raise $687 million annually when fully implemented including $80 million from nonresident workers. It’s been referred to the Senate Labor & Commerce committee but is unlikely to get a hearing. This does not, however, mean the concept may not resurface as part of end-game negotiations.

HB 57/59 – state operating and mental health budgets for FY2018. A conference committee hasn’t been appointed to work out the differences. While the budget is technically the only thing the legislature needs to approve, this year it isn’t going to be concluded until the other components of a fiscal plan are agreed upon.

SB 23 – state capital budget for FY2018. Given the state’s fiscal situation, this year’s capital budget isn’t expected to be large, but as the final appropriation bill expected to move through the process, it’s always one to keep your eyes on. On Tuesday, April 11th, the Senate Finance Committee held its first hearing on the bill and took public testimony. To help raise awareness of the university’s serious deferred maintenance challenges, I testified for the university at Tuesday’s hearing. The University of Alaska (UA) is the largest landlord in Alaska state government, owning and maintaining more than 400 buildings across the state, totaling over 7.7 million gross square feet, with an adjusted value of over $3 billion. The challenge we now face is maintaining our facilities in these difficult fiscal times. UA’s current backlog of facilities maintenance exceeds $1 billion. Historically, the university also has looked to the legislature to provide annual capital appropriations to help address our deferred maintenance. Between FY08 and FY15, the legislature appropriated a total of $227 million, an average of $23 million a year to deferred maintenance. We very much appreciate that support. In FY16 we received $3 million but no funding in FY17. You can listen to the hearing and access committee materials here.

Thank you for your continued support of the University of Alaska. For more information, contact Miles Baker at miles.baker@alaska.edu or visit www.alaska.edu/state.

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