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With Alaska facing a big fiscal deficit, where can significant cuts come from?

Legislators will face a difficult challenge in making big cuts to the operating budget.
Legislators will face a difficult challenge in making big cuts to the operating budget.(KTUU)
Published: Oct. 22, 2020 at 8:39 PM AKDT
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JUNEAU, Alaska (KTUU) - When the Alaska Legislature convenes in January, it will face a sizable budget deficit and virtually exhausted savings accounts.

The Dunleavy administration is now writing its budget proposal for the next fiscal year which must be announced before Dec. 15.

“Gov. Dunleavy has made a sustainable and affordable state spending plan a priority for his administration,” said Jeff Turner, a spokesperson for the governor’s office. “The administration is working on its proposed FY22 operating and capital budgets and a legislative package for the 32nd session of the Alaska Legislature that will promote economic growth and improve educational outcomes for Alaska’s children.”

The budget for the current fiscal year spends $4.5 billion from the general fund, a drop of $3.3 billion since total state spending peaked in fiscal year 2013. Some current legislators have suggested further budget cuts in the billions of dollars may simply not be possible.

K-12 education and Medicaid are the two largest spending items in the operating budget, excluding the Permanent Fund dividend.

School spending accounts for $1.3 billion in state dollars for the current fiscal year compared to $650 million for Medicaid. Those two areas of state spending are roughly equal to spending for all of Alaska’s other state agencies.

The governor said during his budget announcement in February that the Legislature should look at adjusting the formula programs through statute to make budget reductions. Lawmakers did not substantially change the budget during a session shortened by the COVID-19 pandemic.

Some legislative candidates are now campaigning on reforming those big cost items to help bridge the state’s fiscal gap.

Republican candidate for House District 28 James Kaufman supports looking into the education budget. He said many people concerned about impacts to the quality of state services are often benefiting from the status quo.

“Many that are concerned with what you would call ‘cuts,’ somehow they’re directly touched by that,” Kaufman said. “It’s somehow related to their income or income of someone in their family.”

Robert Myers, a Republican running to represent North Pole in the Alaska Senate, also supports cutting school spending through reforms.

“I think when we put those efficiencies in place and change some of those incentives, I think we could probably knock [education spending] down by about a third,” Myers said.

He claimed that those reductions could be made while “still having some good outcomes.”

Anchorage Democratic Sen. Tom Begich disagrees. Begich pointed to a 2015 study commissioned by the Legislature that found the state’s current education funding formula largely works well.

Changing the education formula to reduce costs could have other consequences, too. “Any substantial change that’s done rapidly to the formula will just engender more lawsuits, I’m certain,” Begich said.

Two Alaska Supreme Court decisions in 2011 and 2012 ruled that rural Alaska was being underserved by school spending. The decisions compelled the Legislature to spend more on students in the Bush.

Begich said recent conversations he has had with the Department of Education have focused on implementing new programs and not cutting spending. He said a focus of the upcoming session will be working to expand broadband access for students in rural Alaska.

The governor and Begich also partnered together in January to introduce the Alaska Reads Act. The bill would implement a universal pre-kindergarten system across Alaska and develop literacy programs.

Begich said he would be reintroducing the bill in 2021.

Making cuts to Medicaid

Reforming Medicaid, the state’s second-largest formula program, is notoriously complicated.

D.J. Wilson, the president and CEO of State of Reform, a nonpartisan health policy institute, said a lawmaker would need to know all state Medicaid laws, federal laws, contract law and how to keep people healthy. “And, that’s an impossible task for anybody, but much less a citizen legislator,” Wilson added.

The Legislature and the governor signed off on $128 million in cuts to Medicaid in 2019 which the federal government subsequently said weren’t allowed. The Legislature passed a supplemental budget in 2020 to pay back all the reductions that were made.

“Alaska is in a contract with the federal government,” Wilson said. “So, they have to deliver services and fund those services per that contract.”

Making cuts to Medicaid typically involves changing eligibility guidelines, reducing reimbursement rates for providers or cutting benefits, Wilson said. He explained some viable options to reducing spending could see Alaska further pursuing “coordinated care” and moving away from a fee-for-service model.

But there are complicating factors for those who want to cut Medicaid. During the COVID-19 pandemic, more Alaskans have joined the program than ever before.

House Speaker Bryce Edgmon, an independent from Dillingham, said conversations should take place about cost-saving reforms for Medicaid and school spending, but that they will take a while.

“It could be a two-year process to get through. In a best-case scenario, it would involve all stakeholders and really bringing everybody to the table to have that bigger discussion,” he added.

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