Alaska Governor Takes Heat for Budget Cuts

It was either a lousy political sales job or a subtle effort to manipulate political backlash.

Either way, the state of Alaska will spend much less in fiscal year 2004 than it did last year, and Republican Gov. Frank Murkowski is taking the heat.

As the Alaska Legislature’s session wound to a close in mid-May, the Republican majority and the new governor remained far apart on the budget. They agreed on tightening the purse strings, and lawmakers were looking to cut the general fund by about $60 million.

But Murkowski insisted on drawing no more than $400 million from budget reserves to offset the recurring deficit in the general fund, which would require much bigger cuts. Four days before adjournment, the proposed budget in conference committee was an estimated $161 million over Murkowski’s limit.

So the governor’s chief of staff, Jim Clark, and budget director, Cheryl Frasca, made a presentation to the entire House in an open meeting an event not seen in many years.

Clark and Frasca spelled out specifically what would happen if the legislature did not pass a pending bill for a three percent state sales tax, enough to close the budget gap.

A list of $188 million in potential vetoes was projected onto a screen, including: $44 million for the “longevity bonus,” a program already being phased out that pays 18,000 senior citizens up to $250 a month simply for having reached age 65 by 1996; $22 million in municipal revenue sharing programs; and $32 million in a K-12 supplemental funding program called Learning Opportunity Grants.

While saying he didn’t know whether lawmakers intended to pass the sales tax, Clark concluded: “This is Plan B if you don’t.”

When the governor’s aides were done, the House majority immediately held a closed caucus. The scuttlebutt afterwards was that the number of votes for a sales tax within the 28-member caucus dropped from 17 before the Clark-Frasca presentation to three afterwards.

And with the 12-member Democratic minority refusing to provide any bipartisan cover for new taxes, Republicans found themselves far short of the 21 votes needed to move the sales tax out of the House. During the midnight floor session that followed, House Speaker Pete Kott, R-Eagle River, referred the bill back to committee, effectively killing it.

Lawmakers did not adjust their budget substantially after killing the sales tax, with Republican leaders conceding the inevitability of vetoes.

On June 12, Murkowski followed through on many of the threatened vetoes, including elimination of the popular longevity bonus. To soften the blow, he promised to direct some one-time federal funds toward needy seniors and municipalities.

But rural communities complained about the loss of “village public safety officers,” often the only law enforcement presence off the road system; officials in alcohol and substance abuse treatment programs were alarmed by state cutbacks; and some Alaskans with terminal illnesses contemplated ending their lives without state-supported pharmacy and hospital benefits.

Republicans had few discouraging words after the vetoes, with most calling the governor’s stance “brave” and “refreshing.”

“We feel we’ve established a sound working relationship,” Murkowski said.

“Overall, I think it’s a marked departure from the image that the legislature previously had of being at odds and an awful lot of partisanship,” he added, referring to the Democratic administration of the past eight years.

Analysts on television talk shows marveled at the outcome.

“It was remarkable that this legislature abdicated I think that’s the right word their right to decide where those cuts were going to be and just said, Hey, we’d rather the governor made it,’ ” observed Gregg Erickson, editor of the Alaska Budget Report, an insiders’ newsletter.

“They appreciated it,” said Dave Donaldson of the Alaska Public Radio Network.

“That’s the first time I’ve ever seen something like that,” said Mike Bradner, publisher of the newsletter Legislative Digest and a Democratic House speaker in the 1970s. “We have a one-man legislature now.”

“It was somewhat of a debacle, that whole meeting (with Clark and Frasca), the way people peeled off” right afterward, said Clive Thomas, political science professor at the University of Alaska Southeast.

There is widespread speculation that Murkowski was willing to put his political life on the line because he regards himself as a one-term governor. When asked about this in a television interview, he sidestepped the question.

Murkowski, who turned 70 during the session, has had two operations on blocked arteries this year. And scattered polling data has shown trouble for him because of his budget priorities and his controversial appointment of daughter Lisa to the U.S. Senate seat he vacated after being elected governor.

Under the one-term scenario, then, it made more political sense for Republican legislators to eschew the bitter pill of raising taxes while letting the governor take the fall for unpopular budget cuts.

Meanwhile, the state’s “fiscal gap” is expected to continue and to exhaust budget reserves within four years, setting the stage for $1 billion in budget cuts and new taxes.

“I don’t think this majority was willing to realistically grapple with the reality of putting together a fiscal package,” complained House Minority Leader Ethan Berkowitz, D-Anchorage. “You saw it they wouldn’t even put a sales tax on the floor that their own governor wanted, that he threatened them with $200 million in cuts (over).”

As it turned out, the minority played almost no substantive role in the outcome of the session, a big change from recent years.

Part of it was by choice: Democrats supported new taxes last year, but their candidate for governor got hammered by Murkowski. When Murkowski broke his “no new taxes” campaign pledge, Democrats sought to highlight that fact by voting as a bloc against every revenue bill that was on the move. So when the governor proposed new or increased fees and taxes on tires, business licenses, wildlife tours, motor fuel, charitable gaming and more, it was clear that the bills would sink or swim based on Republican votes alone.

Democrats hadn’t planned to be cut out of the expenditure side of the ledger, however. For the previous eight years, they had exerted some influence at the end of session. That’s because Alaska must dip into reserves almost every year to patch a structural deficit in the general fund. Accessing the reserve account has required a three-quarters vote of the legislature, bringing Democrats into play. Last year, they used their leverage to enact an aggressive bonding program to build and repair schools in rural districts.

But this time Republicans found a way around the three-quarters vote. According to the constitution, a simple majority is all that’s needed when the funds available for appropriation in the next fiscal year are less than the current year’s expenditures. Republicans and Democrats initially differed about whether that situation existed, but Republicans made sure of it through some fund transfers between fiscal years. And Democrats were vehemently opposed because one of those transfers depleted the account used to pay the permanent fund dividend to all Alaskans a sacred cow of a program, as Social Security is nationally. Republicans denied that they were jeopardizing the dividend.

Democrats will be on the defensive again next session, particularly if the Murkowski administration carries through on its pledge to cut another $250 million more than 10 percent of the already shrinking general fund.

Frasca, the governor’s budget director, said: “We have an ambitious summer project to get under way.”

Erickson, the Budget Report editor, said the administration is just posturing.

Former Deputy Revenue Commissioner Larry Persily said the prospect of more drastic cuts might be the thing that finally cures Alaskans of their tax phobia.

Persily said: “They may come to the Capitol and say, I want to pay for services.'”