Second Session Called; Education Funding Showdown

Read our full report here.

Yesterday, the Legislature adjourned the first special session without resolution on the amount of the PFD and leaving unresolved capital budget and reverse sweep issues. Legislators have been in session for 150 days. Shortly after adjourning, Governor Dunleavy called a second special session.

The operating budget which was recently passed by both bodies was transmitted to Governor Dunleavy late Thursday afternoon. He has 20 days or until July 6 to make any vetoes. It is widely believed that the Governor will make his budget decisions before the deadline and that many funded items will be vetoed. From there the budget will go back to the Legislature where any veto can be overridden with a three-quarters vote. The current Legislature is divided so mustering a three-quarters vote may be difficult.

Capital Budget

Over the last several days, both the House and the Senate passed the capital budget, but the required vote to fund $160 million of it from the Constitutional Budget Reserve (CBR) failed. Spending from that CBR requires approval from three-quarters of both the House and Senate. Every year, the state receives millions of dollars from the federal government for capital projects, but in order to receive the federal funds the state must provide some state matching funds. The state has about six weeks to approve the capital budget or risks losing millions in federal dollars. This issue is not on the special session call but will need to be addressed.

In recent years, to balance the budget the Legislature has spent money from one of the savings accounts, the Constitutional Budget Reserve. The constitution states that money spent from the CBR must be paid back. Until the money is paid back, all of the states remaining general funds are swept into the CBR at midnight on June 30th (end of the fiscal year). This sweep could wipe out established savings accounts for programs like Power Cost Equalization, the Alaska Marine Highway, and Worker’s Compensation, to name a few. Usually the Legislature adds language to the budget that reverses the sweep and puts all of the money back into the savings accounts right after midnight. This year the language isn’t included anywhere. This causes several problems. First, the operating budget relies on funding from some of these saving accounts to fund programs. If the accounts have been swept, there will be no funding source creating an estimated $323 million dollar shortfall in the operating budget.

Second, it may be difficult to get the funding for the savings accounts restored since Governor Dunleavy stated his intent earlier in the session to eliminate most saving accounts. His proposed budget transferred all of the savings account money into the general fund. This is of particular concern to rural Alaska since the PCE endowment fund has helped ease the high costs of energy and provides funding for community assistance and alternative energy, depending on investment returns. The reverse sweep issue is also not on the special session call. If this problem isn’t corrected it will mean large cuts to programs and services.

Permanent Fund Dividend

During the legislative session and special session, the Legislature failed to agree on the amount of the PFD. Instead the two bodies agreed to create a bicameral working group through the passage of House Concurrent Resolution 101. The group will address a variety of PFD issues including the impact to the state’s fiscal health at different pay-out levels and the impacts to the state’s economy. The bicameral working group has already met several times and is approaching the work by breaking into teams each with an assigned task as they look for potential compromise. There is no deadline to complete their work and its recommendations are non-binding.

Education Funding Showdown Continues

There is also a continuing disagreement over education funding. Last year, as part of the final adjournment compromise, the House and Senate forward-funded education and added additional funding in two one-time increments totaling $50 million over two years: $20 million in FY 19 and $30 million in FY 20. Governor Walker signed this legislation into law. This year the Legislature has again forwarded funded FY 21 education funding for the foundation formula and pupil transportation. The Governor argues that forward funding is unconstitutional and he's threatening to withhold money from school districts in July. However, the Governor's administration recently released the $20 million in FY 19 funding to school districts. Although this is good news, it doesn’t resolve the underlying issues and the Governor is still threatening to withhold the FY 20 funding. A lawsuit on the withholding of the first $20 million has already been filed by Coalition for Education Equity (CEE). Coalition for Education Equity and Sarah Sledge, Executive Director, has been on top of this education funding issue from the very start. On behalf of the Governor, the State of Alaska has filed an answer to CEE’s complaint asserting that the FY19 $20 million one-time appropriation was unconstitutional and the Governor is not "bound to execute an unconstitutional statute". CEE will continue to pursue this legal action. Additionally, on Thursday, the Legislative Council met and authorized their in-house legal team to prepare to file a lawsuit against the Governor as well. If the Governor fails to distribute education funding for FY 20 by July 15, the Legislature will proceed with their lawsuit. As the July deadline nears, J and H will keep you informed on the status of education funding. This may be the first of many showdowns between Governor Dunleavy and the Legislature.