Did the Legislature really cut the budget?

Posted: Thursday, May 11, 2000

JUNEAU (AP) -- The Legislature's Republican majority claimed a $30 million-plus budget reduction as lawmakers adjourned last week, but that cut could evaporate as early as next year as bills come due for shifting and delaying spending to make the bottom line look smaller.

The GOP majority has focused on reducing spending from general funds -- the all-purpose money that comes mostly from oil revenues, taxes, and the state's cash reserves. That has allowed lawmakers to maintain or even increase spending in some areas by using money from the federal government or other state funds.

This year, lawmakers increased spending for the University of Alaska, sent grants to local school districts to help prepare students for the new high school exit exam, authorized money for new schools in the Bush and gave state employees a $1,200 bonus -- all while reducing general fund spending by more than $30 million.

How'd they do it? Partly by cutting spending, but mostly by replacing general funds with other money, reaching back to capture unspent money from past budgets and using bonds to reach into the state's coffers in future years.

''It was a combination of factors, including trimming agency staff and programs, that took us to our $30 million reduction,'' said Senate Finance Committee Co-Chairman Sean Parnell, R-Anchorage, who is retiring this year.

For some of the lawmakers likely to return after this fall's election, the picture's a little bleaker.

''We're going to be in a lot of trouble next year because so many one-time pots of money were used,'' said Rep. John Davies, D-Fairbanks, a member of the House Finance Committee.

Here's a look at the biggest pieces of the budget picture:

The Education Windfall

The agency slated for the biggest cut is the Department of Education and Early Development, thanks to a drop in student enrollment coupled with an increase in property values. Those two factors drove a $16 million decrease in the amount needed for the formula that disperses money to local school districts. That's more than half the $30 million reduction at one swing.

The same factors produced a surplus in the current fiscal year that lawmakers grabbed to pay for increases next year. About $6.5 million goes to the University of Alaska, while $5.8 million will help local school districts prepare students for the new high school exit exam.

That's more than $12 million in budget increases for the fiscal year that begins July 1 that don't show up on the bottom line because they came from the current year's budget.

So what's the problem? Both the Department of Education and the university will likely want those increases built into their budgets next year, and there won't necessarily be another windfall to pay for them. Also, enrollment could go back up, erasing some or all of the $16 million cut.

Parnell calls an enrollment increase unlikely, and says no agency's budget request will be automatically granted.

''Every year, each agency, including the university, has to justify their spending request,'' Parnell said. ''That's an annual battle that won't be any different this year than it was this year.''

Bonds and Capital Projects

The capital budget for fiscal year 2001 spends $72 million from the general fund, about $10 million less than the current year, according to the Legislative Finance Division.

But the Legislature authorized $92 million for seven school construction projects in the Bush and around $100 million to reimburse school districts for the cost of dozens of other school projects.

Unlike the education windfall, that money comes from the future, not the past. The rural schools will be built using bonds backed by part of the state's share of the tobacco settlement -- which now goes into the general fund. In urban areas, school districts will issue their own bonds, but the state will pay most of the debt -- from the general fund.

Lawmakers could have paid for the projects in cash from the state's reserves and saved the interest on the bonds, but that would have blown away their budget reduction. By issuing bonds, they avoid busting the budget this year by increasing debt payments in future years.

The Medicaid Shuffle

Before they could tackle their $30 million reduction, lawmakers had to cope with about $27 million in increases to programs that pay out money according to formulas required by law.

Among the biggest of those programs is Medicaid, and budget-writers turned to a complex money shuffle to handle its growth.

A maneuver known as Medicaid ProShare allows the state to more than double the federal match rate for Medicaid by legally laundering federal money through local hospitals, and then using it in place of general funds to match even more federal money.

That cut the state's share of the Medicaid increase, allowed lawmakers to pay for increases in children's programs, and held the general fund budget of the Department of Health and Social Services at the current year's level.

State Employee Contracts

As lawmakers began a special session last week on newly negotiated contracts with state employee unions, majority Republicans demanded that Gov. Tony Knowles find most of the money for pay and benefit increases from outside the general fund.

Paying the entire $19 million general fund tab would have wiped out most of the Legislature's treasured $30 million cut.

The administration agreed to try to squeeze an extra $8 million out of Medicaid ProShare by working the shuffle before the end of the current fiscal year.

Officials also came up with $4 million from the school debt repayment fund, $900,000 from the Commercial Fisheries Entry Commission's receipts and $818,000 that won't be needed this year to make longevity bonus payments to Alaska seniors.

The problems? In the short term, Medicaid ProShare may not yield that much money, forcing the state to make up the difference from the investment loss trust fund, money regarded as similar to general funds.

And next year, contracts negotiated with state and University of Alaska employees call for at least another $23 million from the general fund.



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