After an initial review of the Governor’s proposed FY22 budget, AML believes that the approach is a good starting point that is sensitive to the unique challenges of the current public health and economic crisis. It recognizes the value in avoiding significant cuts or reductions during this period of hardship, while providing a much-needed infusion of financial support for residents and the economy. These items rest on sound economic principles.

We are pleased to see funding in place for:

  • PCE payments for high energy costs in most of Alaska
  • Alaska Public Safety Communication Services, formerly ALMR and SATS
  • Human Service Community Matching Grants and Community Initiative Matching Grants
  • Shared taxes in place for distribution to communities impacted by that economic activity
  • Village Public Safety Officers
  • Reducing the unfunded PERS and TRS liability
  • Broadband assistance and Internet for Schools

We believe the Governor has correctly identified the most important long-term issues – broad-based revenues to address annual shortfalls and changes to the PFD formula. Addressing these issues must begin. As it relates to broad-based taxes, resolution this year does not result in taxes during this crisis – the Legislature should set in motion now the structure necessary to fund State government in the years to come. On the issue of the PFD, there appears to be emerging consensus that the formula must change. We understand that a reasonable and well-designed spending cap may provide public confidence in legislative action, but that a great deal more work needs to go into this process. Legislators have the tools necessary to weigh the pros and cons of those changes and should use their lawmaking power – to be clear, these are all within the remit and authority of Alaska’s Legislature.

Naturally, the proposed budget will change during the legislative process, and in response to federal action. As those conversations occur, there are areas within this budget we feel require work. Some examples include:

  • Community and regional jails have remained flat since 2015; these agreements should be renegotiated so that local governments aren’t paying for the State’s obligation.
  • Our communities rely on public television and radio for information, emergencies, and connection to State decision-making. We’re concerned about the continued refusal to fund these vital programs.
  • The AMHS continues to be underfunded in the budget proposal. Until reform is accomplished, funding should be held at levels approved last year by the Legislature.
  • Not only has the State not invested in REAL ID outreach to rural Alaska, but it is now closing DMV offices in Homer, Haines, Delta Junction, Valdez, Tok, and Eagle River.
  • Given the unusual nature of the last school year, it’s unclear how much enrollment has truly changed. The State should base FY22 funding on FY20 student population until communities, schools, and parents adjust to post-pandemic life.
  • Recapitalizing the Community Assistance Fund to its full amount of $90 million to provide funding stability for local governments during these uncertain times.
  • Support school construction and major maintenance – key aspects of the State’s constitutional obligation to maintain a system of public education.
  • Municipal debt reimbursement for school construction bonds and port and harbor improvements are not fully funded. The State should honor its commitments to local governments and taxpayers that took on debt under the assumption that the state would share in these costs.
  • Include funding for harbor facility matching grants, a component of the agreement made in the transfer of these State assets to municipal governments
  • Reinstate Local Emergency Planning Committee funding so that local governments are better prepared for crises such as those experienced during this pandemic

AML is interested in some of the Governor’s proposed legislation and will develop positions as these ideas move through the legislative process. While we generally support allowing the State to change the PERS rate applied to itself as an employer, we will watch closely and would oppose any changes to other employer rates. PERS and TRS require a level of State investment that reduces the cost for all, in the long-term, as well as new ways for employers to exit the program as affordably as possible.

Another issue of significant note is the use of additional earnings from the Permanent Fund beyond the POMV limit. AML has passed resolutions in support of a sustainable draw on the Fund, implementing revenue measures, right-sizing spending, and fulfilling the State’s constitutional obligations. We believe these must be viewed together. A commitment to growing the Permanent Fund at the expense of other responsibilities ignores the reality of this crisis and the condition that we are in. Given the current crises, we support using more earnings this year to provide relief for Alaskans and Alaska’s economy. That may change with additional federal relief, if that is made available. There are also other investments the State could choose to make, which accomplish other forms of relief, including paying down its retirement and school bond debt obligations. But a one-time overdraw is not sustainable. We only support this approach if the Legislature also begins the process of implementing a long-term solution. They must identify new revenue sources for future years as identified in the 10-year plan, sufficient funding of State obligations, and a commitment to savings and fund balance management that is responsible into the future.

Finally, AML supports an infrastructure package funded through a general obligation bond, so long as AML members have an opportunity to identify infrastructure needs that State investment would help address. However, we do so cautiously. It’s worth pointing out that the State committed to reimbursing municipal debt that improved ports and harbors, and school construction. For the last few years, the State has shirked its obligation and left local governments to pay that debt. If the State is to take on new debt, then it must recognize its responsibilities to prior debt commitments.

It is our view that the Governor’s budget – and Legislative decisions in response – should be looked at as part of a comprehensive fiscal policy. All decisions should be subjected to rigorous analysis, which recognizes the downstream impacts on local governments and the economy. Ultimately, Alaska’s elected officials will need to determine the combination of actions that will place Alaska on a sustainable path forward. We are thankful that the Governor has begun the conversation for the FY22 budget from a reasonable starting place. We look forward to working with legislators through these complex issues, including as they relate to impacts to future State decisions, the economy, and partnership with Alaska’s local governments.