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Low oil prices are creating holes in Alaska's budget, making conversations around funding education and state services even more difficult.

Transportation costs.

Health insurance costs.

Districts are really needing an infusion of money that we have not been funding the last several years.

How can legislators balance the budget to meet the obligations to fund services?

We'll discuss it right now on Alaska Insight.

Good evening, business is picking up in the state legislature right now as Alaska's operating budget comes closer to completion.

Tonight, we'll speak with members of the State Senate about their ideas for addressing the state's fiscal issues, primarily-- how to maintain funding for important state services while passing the constitutionally-obligated balanced budget.

But before we get to that discussion, we'll start off with some of the top stories of the week from Alaska Public Media's collaborative statewide news network.

In Congress on Tuesday, the day after a Nashville school shooting, Alaska Congresswoman Mary Peltola, reiterated her support for the Second Amendment at a House hearing.

She commended responsible gun owners and hunters.

She referred only obliquely to the Nashville killings, and said such tragedies aren't committed by hunters who learned good values at home.

Her position disappoints a segment of her Democratic base who want her to support a ban on AR-15-style weapons.

A federal judge could issue a decision as early as next week on whether to temporarily halt construction of Willow, ConocoPhillips' controversial oil drilling project in the National Petroleum reserve.

Two lawsuits filed by environmental groups and an Inupiat advocacy organization aim to overturn the Biden Administration's approval of Willow.

The plaintiffs have asked for an injunction to halt construction until the case is decided.

U.S. District Court Judge Sharon Gleason says she will try to have a decision on the injunction by April 3.

In 2021, Alaska reported its highest number of pregnancy-associated deaths in the last decade - more than double the most recent five-year average.

Those statistics come from the state's Maternal Child Death Review program, which looks at deaths that happen from the start of pregnancy until one year after a pregnancy ends.

The report finds most of these deaths in Alaska do not happen during labor, but rather from violence afterwards.

More than half of the maternal deaths in the last five years were linked to intimate partner violence.

Advocacy groups as well as those involved with the program say the numbers are a call to action for Alaska to address its longtime issues with violence against women.

You can find the full versions of these stories and many more on our Web site, alaskapublic.org or by downloading the Alaska Public Media app on your phone.

Now on to our discussion for this evening.

The Alaska legislature is more than halfway through its regular session.

And as with many recent sessions, discussions largely center on the state's finances.

While a number of social issues have come up as well.

Alaska Public Media's Kavitha George has this report on what to watch this session.

The legislature's primary job each year is to pass the state budget.

Alaska's budget outlook is heavily dependent on the price of oil, and this year, dropping oil prices have created a pretty big hole.

Last week, the Department of Revenue released new estimates that show the state has about $245 million less than expected in revenue this year.

The legislature will likely have to spend from savings to cover that gap.

And both the House and Senate are considering smaller fees this year, ranging from 1300 dollars to 20 $700.

Even Governor Mike Dunleavy, who was in favor of a 30 $700 dividend this year, acknowledged it may have to be a smaller amount.

And we'll continue to have the discussions as to what that's going to look like in the end.

In the end, it's the legislature appropriates.

So we'll see what with that number of lands on.

The deficit estimate doesn't include the proposed increase to education funding.

Another big issue, lawmakers are working through this session.

Both the House and Senate are advancing bills to raise the base student allocation or the amount the state pays.

K-through-12 schools per student enrolled.

Junior Representative Andy Story stressed that between flat funding, education and historic inflation, schools have been working with tighter and tighter budgets.

A transportation costs, health insurance cost districts are really needing an infusion of money that we have not been funding in the last several years.

Last week, the House Education Committee whittled down the proposed BSA increase over the next two years, from over 1300 dollars to $800.

Another priority for some lawmakers this session is moving state employees back to a defined benefit pension system.

Reports show most employees aren't able to save enough to retire under the current 4a1k style system.

Senator Cathy Giesel who championed the bill in the Senate, says it's a driver of Alaska's labor shortage.

We have ferries right now that are ready to sail, but they can't sail because there's not enough crews to staff them.

We have schools that started this fall without a teacher in every classroom.

We had kids and parents not sure how those kids would get to school.

This year because busses were not fully staffed with qualified bus drivers.

As the session approaches its final weeks, the budget outlook is going to create some tough choices for lawmakers trying to push their priority bills forward.

A few have floated reducing oil tax credits or even introducing a sales tax as a way to boost revenue.

But both ideas are a long way from passing.

For Alaska insight, I'm Kavitha George.

Joining me tonight to discuss what's happening in Juneau, particularly in the State Senate is the Senate President, Kodiak Republican Senator Gary Stevens, and Senator Bill Wieleshowski, an Anchorage Democrat and chair of the Senate Rules committee.

Thank you for having us.

So let's I want to find out about a meeting that happened this morning.

Senator Stevens, the governor requested meeting with Senate leadership this morning.

What can you tell us about this meeting?

Well, I asked the governor if he would meet with us and he wasn't able to come to a session that we had yesterday.

But he was able to organize an 8 a.m. meeting with with our caucus, which is really valuable.

I think we had a chance to hear what the governor's concerns are and that he's willing to work with us.

And so it was very positive, I think in many ways.

He has some interesting ideas.

And of course, I'll actually all of the things that we talked about, our things of the Senate has been working on and various elements of the Senate mostly and and finance.

So, you know, the it was a good meeting and brought us all together and I am pleased to see the governor is being so positive about helping us to move forward and come up with a final solution here.

Did you talk in specifics about some of the proposals that are presented, such as the tax bills that are being looked at right now?

Well, I think what the governor said pretty much is that he's willing to listen to anything that gets us to the end and solves the problems we face.

The big issue, I think, of course, that is, is out there that we need to decide upon is the amount of the PFD and how we're going to fund the budget.

There are several bills, so that will take to try to build a date on on taxes, on oil.

And all of these things need to be discussed.

The House has introduced, as was mentioned earlier, a sales tax.

We we'll talk about all those things and see how they fit in and how we can come to a conclusion here in about seven weeks.

All right, thank you, Senator Stevens, for starting us off the spring revenue forecasts painted a pretty grim picture compared to the fall forecast.

Senator Wieleshowski, in an earlier interview, you said you expected the House budget to be 400 to 450 million in the red before considering education and deferred maintenance.

The Constitutional Budget Reserve has about $2 billion in it, but that can't easily be accessed.

Correct?

The Constitutional Budget Reserve requires a three quarter vote of each body.

That's proven to be extremely difficult to get.

And yes, we will have, at least according to current projections, if the House budget passes as it left the Finance Committee roughly a 400 to $450 million shortfall, and that's before adding funding for education, that's before adding funding for deferred maintenance.

So we've got a challenge ahead of us.

And because there's about 2 billion in the constitutional budget reserve, that that vote would be even more difficult.

If I'm understanding it correctly, because there should be at least that much in the CBR, correct?

Yes.

Our legislative finance division and the Department of Revenue have told us that pretty much the bare minimum that you can that you should let the constitutional budget reserve drop to is about $2 billion.

Some say it should be somewhat higher.

Some say it should be maybe a little bit less.

But you need the constitutional budget reserve to balance the fluctuations that we have throughout the year with our budget.

There's a complex series of transactions that occur throughout the year that we authorize to allow that to happen.

But you need to take into account that you may have oil prices that dropped, you might have shortfalls in revenue that you don't expect.

And so you need that cushion in the constitutional budget reserve.

And we're at about the bare minimum where we can be on the constitutional budget reserve.

You can't take a whole lot out of it without impact in the future cash flow of the state.

All right.

Thank you.

Senator Stevens, back to you.

The state constitution requires, as we mentioned, a balanced budget.

There have been cuts for a number of years now.

Are there still cuts or others that you think are still available to be made?

It's really hard to find cuts.

As you know, we we did make some cuts.

The cuts were made to the SNAP program, to the employees there last year.

And it just went too far and we weren't able to do.

The duty of the state is to help people with food needs.

And so we were able to put some money back in and the fast tracked supplemental.

But as we're finding additional places to cut the budget, that's that's really hard and and probably no big dollar amounts eliminate programs entirely you could do that but I think most folks don't want to see that happen.

Senator Wieleshowski are there any cuts that you can foresee at this point?

I don't I would agree with Senator Stevens.

I don't think there is room for significant cuts.

There's always room, I think, for maybe some some around the edges.

But but I think in the last decade or so we have the budget has been cut significantly.

And I just don't think there is room for significant additional cuts and we're not seeing additional cuts proposed by the governor.

We're not seeing them proposed by the House.

We haven't seen them proposed in the Senate.

So if there are cuts out there, we just haven't seen them.

What a dilemma right now.

Senator Stevens, from your perspective, where are the biggest holes, the most urgent needs in the budget that you feel just simply must be addressed this year?

What are your must have priorities?

Well, there are two issues that our caucus was organized on the bipartisan caucus.

The Democrats and Republicans really gathered to form the majority here in the Senate.

And there were two issues we started with.

One was education, adequate education funding, and the other was the retirement.

We know that retirement may be an issue that'll take a couple of years to do, but hopefully we can get to the end on education here.

As you know, there were two or a little bit apart from the House and the Senate.

The Senate said about 32 puts in $1,000 and 24, 34 and 25.

And then the inflation factor.

The House has a $600 BSA and then increases that by $120 and 25, 19 and 25.

So that's a total of 800 or so.

We're a little different but but are close enough that we can keep talking about this and hopefully come to a two and agreement on how much we need to put in education.

As a former professor, I know as actually as a former president school board, I know the problem was our school boards are facing and this is not the right way to improve the educational standards and the education outcome for our students.

So more money needs to go in.

We'll see where the compromise three in the House or the Senate actually winds up.

Senator Wieleshowski do you see it similarly?

I did.

We had two priorities in our caucus education funding and a defined benefit.

Those bills have been moving through the Senate and we have not increased the based on allocation since 2016.

So it's been six years going on seven now.

In that time you've had inflation increases, significant inflation increases.

In recent years, we've had labor costs increase, we've had transportation costs increase, we had fuel costs increase.

You've got deferred maintenance needs that are out there.

So you this is something that is critical.

We have six schools proposed to be closed in Anchorage alone and other schools proposed in other parts of the state.

People are seeing the dramatic impacts of going to adequately funded education.

We have got a constitutional obligation to fund education, and I think we're getting perilously close to meeting that constitutional obligation.

Well, against this backdrop of these constraints, are you still, as you have been, Senator Wieleshowski a fan of a full statutory PFG permanent fund dividend?

Well, I the math just doesn't work at this point.

I, I, I wish it did.

I wish we were in a different situation.

I wish we had adopted some other things in recent years that could change that.

But the reality is we've got a government to run.

We've got constitutional obligations for public safety.

We've got constitutional obligations to keep our courts out.

We've got constitutional obligations to provide education funding.

We've got to keep Constitution obligations, quite frankly, to provide for the general welfare of the people, which we do.

Our Health and Social Services Department.

So the money is simply not there.

It's a basic math problem, and the money's just simply not there.

Senator.

Yes, please.

Senator Stevens, I want to ask for your thoughts.

You know, the Senate bill, 107 is and Senate Finance right now, and that that's called Article 7525, meaning that 75% of the Plan B would be used for running the government at 25% would would be used for for a dividend.

You know.

That to me, I know it depends on how it all turns out.

But that could be, I think, around 11 to 1400 dollars for for a fee.

But at the same time, it allows us to fund all of the things we need to do, like education, to fund the current budget, plus the education, plus the university maintenance issues that are out there as well.

So, you know, we'll see how that turns out.

But at this point, that seems to be a pretty a pretty good looking pretty good just for us finding a solution to this that SB 107.

There are other things out there.

But if we did that bill 7525, we would not have to really deal with additional oil taxes and that sort of thing.

Let's talk a little about potential revenue.

There's a proposal for a sales tax, a statewide sales tax of 2%.

This would be on top of local sales taxes ranging from anywhere from two or 3%, up to 7% in some communities.

Do you think it will have a chance of passing?

Are you supportive of this concept?

Senator Stephen, start us off.

Well, it's worth the discussion.

I think we need to have that discussion as beginning in the House.

I came through the Ways and Means Committee.

Of course, we have not seen it yet, have not talked about it in the Senate.

But the problem, having been a former mayor of my my city and also the borough, I realize the problems that are facing local communities.

We have, like many communities have a 7% sales tax.

We had a couple more percent.

Some are higher than that.

And so you're approaching a 10% sales tax that that'll be quite, quite a struggle for many people.

And, you know, if what we're talking about is is just dealing with the permanent fund dividend, if people are willing to have a high sales tax in order to have a high permanent dividend, I mean, I'm not sure that many people are willing to do that, because what we're doing really is just taking money out of one of your pockets and putting it back in the other.

So that's a concern we have.

I'm also concerned about the the number of people we'd have to hire to have a sales tax division here in the state.

Apparently, the way it looks, we would collect the sales tax for all the tour entities and remit it to the various trinity.

So it's quite an expense and quite a large department would have to create.

So there's a lot of a lot of a lot of issues that need to be discovered in the sales tax.

And we'll see how it turns out when it comes to the house.

Senator Wieleshowski your though Well, my preference would be to see changes to the oil tax structure first.

But we need a comprehensive fiscal plan, in my opinion, and that's going to require everyone to give give a little bit.

And from the the the oil tax bill that was presented today would raise over $800 million per year.

And that number may shrink through the process, but but the the projections that we need to get a 5050 going forward are, I've heard, range anywhere from 800 million to $1.2 billion.

I've been a big supporter, as you know, of of the dividend.

I want to as big a dividend as possible.

And what I'd like to see is let's start getting what I think we need to do under our Constitution, all of our constitutional obligation to get the maximum value for our resource.

We need to increase the or change the all taxes and quite frankly, is just cutting all tax credits for the most part.

And closing an escort loophole gets us probably $600 million.

That the governor's carbon sequestration bills get us anywhere from 300 million to the projections up to $1.2 billion.

I'm happy to have a discussion about anything else that people bring in and anything that gets us to that point where we can all agree.

And, you know, I'm I'm not I'm not willing to say I'm not going to consider anything at this point.

I'll consider anything.

And I think that's where the governor was today.

And I think that's where people in the legislature, many people are in that we need to solve this problem.

You know, the problem with just using a dividend only solution is what happens if the stock market declines, which many people are suggesting will happen, where a lot of talk about possibly going into a recession, if the stock market declines rapidly, that greatly depletes depletes the earnings reserve.

You know, we were in a situation not too long ago where 2009, 2010, after the market crashed, we couldn't afford to pay a dividend.

And that caused the permanent fund to have to sell at a firesale there a lot of their assets.

And so I think a permanent fund only solution is not going to get us to the finish line.

I think there needs to be other components to this.

So, Senator Stevens, I want you to weigh in here.

What are you hearing about the potential for support for an overhaul of the oil tax system that would have the potential for raising revenue faster than the the carbon sequestration plan that would take many years to implement a reduction or a overhaul of oil taxes could be a more immediate effect.

What's the reception been like?

Well, I believe it's pretty positive.

You know, Iran, it's a carbon sequestration, could be a long time in coming and may not bring in the money that we need.

But we certainly want to support the governor's ability to deliver that and try to find a solution, try to find some money is coming in from carbon sequestration, but you're talking about the tax structure on oil.

WieleshowskiI think there's a lot of support for that.

As you know, as Senator mentioned the correcting the loophole that exists for corporations where prior to this they did pay a tax and some tax to the state.

Now they are they have not been doing that.

I'm talking about S Corporation.

So that's a pretty substantial I think it adds about $139 million to our to our revenue.

So I think that's the easier one of the two is to clear up that loophole that has existed.

The other issue that Senator McCaskill sorry about that reducing the oil tax credits certainly worth looking at.

It would make a big difference in our in our revenue.

And we should be, again, discussing everything, but with a realization that we only have somewhere around seven weeks to go here to to solve all these problems.

And we need to work quickly to get that done.

Wieleshowski of the the critiques that we hear when there is proposals for changing the oil tax structure on the industry, on the oil industry, is that it will chill investment, that it will drive producers out of the state.

Is there any past evidence of that being the case when taxes have changed in past legislative sessions?

Senator Wieleshowski or Senator Stevens?

Well, we we passed ACS in 27.

It's going to equal share.

Governor Palin was the governor at the time, and that was a fairly significant increase in oil taxes.

And we heard every we heard the complaints that this would discourage investment.

In fact, investment went up to all time highs, jobs up to all time highs when that and it was because of the way that tax structure worked.

You can you can organize your tax structure in a way to incentivize investment, to incentivize new companies.

And that is exactly what we did.

And when Senate Bill 21 passed in 2013, we heard all sorts of promises that this was going to create all new jobs, new investment, new production.

And the more Alaska Production Act and new revenue and protect and grow the party, quite frankly, and have the numbers.

Production has declined.

We were promised 2 million barrels a day were just dropped below 500,000 barrels a day.

Revenue has plummeted in the state to the point where we can no longer fund our government.

Oil used to fund 85% of our government.

It now funds between 15 and 25% generally.

Investment has been cut in half since 2014 on the North Slope, and it's gone from $877 million at Prudhoe Bay down to $220 million last year, declining just about every single year.

Of course, we see what's happened to the dividend.

So, you know, the jobs.

And that's the other thing.

Jobs have been cut more than in half since 2014.

So a lot of promises were made.

None of them were kept.

And here we are, you know, and in my opinion, I think the evidence is just crystal clear that it's not getting us what we were promised.

ia our final minutes here, Senator Wieleshowski And then I want to end with Senate President Stephens.

What is your absolute must have in this last seven weeks?

And do you anticipate we're going to be looking at special sessions?

Well, look, we've got to get 11 votes in the Senate, 21 in the House and and the governor to sign on.

What I'd like to see is I'd like to see us take this opportunity and come up with a fiscal plan.

Okay.

And we've debated these issues for years.

We've debated oil taxes.

We've debated the permanent fund.

We know what the issues are.

We just need to act with the political will to act.

Yes.

And Senator Stevens, in about 1520 seconds here.

Well, I want to say that the key things to me would be to make sure that we adequately fund education and then make a final decision on what the amount of the fee is going to be.

Those are the two key things I think we can expect to decide in the next few days.

Do you think that there will be a special session?

No, no, I don't believe that's necessary.

I think we can get our work done in 121 days.

And I don't think anybody wants to have a special session at all.

right.

Well, thank you so much to my guest, Senate president, Republican Gary Stevens of Kodiak and Anchorage, Democrat Senator Wieleshowski for their time this evening and for their efforts in seeking legislative consensus on a balanced state budget during fiscally challenging times.

That's it for this edition of Alaska Insight.

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Thanks for joining us this evening.

I'm Lori Townsend.

Good night.