When is a budget cut really a budget cut?

Posted: Sunday, March 26, 2000

JUNEAU (AP) -- When is a budget cut not really a budget cut? When it comes out of the bag of tricks lawmakers use to make the budget look smaller while leaving many programs untouched.

The Legislature's Republican-led majority's financial agenda is aimed at reducing spending from the state's general fund, not the entire budget.

That's an important distinction because general fund spending makes up only about a third of the more than $6 billion the state spends every year. The rest is federal money and other state funds, including the Alaska Permanent Fund earnings used to pay the dividend.

To make the general fund portion smaller, budget writers use a variety of shifts, shuffles and budgetary sleight-of-hand.

One of the Legislature's favorite maneuvers for cutting general fund spending is tapping the healthy flow of dollars from Uncle Sam.

''We're able to fund our priorities without adding funds by doing it with federal money,'' said Sen. Sean Parnell, R-Anchorage, co-chairman of the Senate Finance Committee.

One growing source of fund-swapping is the federal welfare block grant. As welfare reform shrinks the amount of actual welfare payments, more of the grant becomes available for programs that formerly used state money.

Child care subsidies, grants to programs that battle domestic violence and sexual abuse, and the Head Start program all get money from the block grant.

The downside? Congress could eventually reduce the block grant to match the decrease in actual welfare cases, forcing the state to look for another source of money for the program.

''The block grant, as we've pointed out over and over again, is not a permanent fund source,'' says Annalee McConnell, Gov. Tony Knowles' budget director. ''Can it help us with the fiscal gap this next year? Yes.''

The House version of the operating budget for the fiscal year that begins July 1 also includes a complex Medicaid shift that frees up nearly $13 million in general funds currently spent in the Department of Health and Social Service,

The change suggested by the Department of Health and Social Services makes up nearly half of the $26.5 million general fund cut in the House version of the budget passed earlier this month, McConnell said.

Another way to make the main budget seem smaller is to shift millions of dollars of spending from the main budget passed in the spring to the supplemental budget passed early the following year.

The supplemental budget is theoretically meant for emergency and unexpected spending, but it's increasingly used to cover predictable shortfalls in programs such as the longevity bonus, Medicaid and the public defender's office.

For instance, this year's supplemental budget contains $4.5 million to cover a shortfall in longevity bonus payments. Meanwhile, the House's budget for next year again earmarks less for the longevity bonus than the Department of Administration estimates the program will need.

The state's spending plan ordinarily earmarks $16.5 million for the supplemental budget. Only unexpected savings in some areas kept this year's supplemental budget from busting that number.

McConnell estimates the House budget will force at least $15 million in supplemental spending next year. And that doesn't count the disasters and other unexpected spending.

Rep. Eldon Mulder, co-chairman of the House Finance Committee, concedes the budget makes aggressive assumptions on some programs.

Not all of the state's income counts as general funds. One of the biggest examples is the annual dividend paid by the state-owned Alaska Industrial Development and Export Authority -- about $18 million.

In the past, that money's been used to match federal dollars for projects included in the capital budget. But the House budget uses most of it to offset increases in state debt payments in the operating budget -- a separate spending bill.

That spared the general fund part of that budget from increased debt payments.

The problem? The money's spot in the capital budget would be empty, which apparently didn't sit well with the Senate Finance Committee members who traditionally write that spending bill.

The Senate version of the operating budget doesn't use the AIDEA dividend. Instead, the Senate tapped another non-general fund source -- the dividend from the Alaska Housing Finance Corp.

Finally, a simple act of the Legislature can actually make entire programs disappear from the general fund budget.

Take the Alaska Seafood Marketing Institute, a self-sufficient program paid for by special taxes on the fishing industry.

ASMI's $6 million-plus budget is part of the general fund spending that lawmakers want to shrink, but why cut a program that pays for itself? Simple -- pass a bill making the taxes a ''statutorily designated program receipt'' and $6 million magically disappears from the general fund part of the budget and reappears in the ''other funds'' category.

Just such a bill passed the House Finance Committee on Friday.



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