Daily Sitka Sentinel

State Savings Drain To Go On: Stedman

By TOM HESSE

Sentinel Staff Writer

Sitka Sen. Bert Stedman says this year’s legislative session was heavy on conflict and light on progress. 

“This year there was a lot of squabbling over 143 million bucks and we didn’t even move the needle,” Stedman told the Chamber of Commerce, Wednesday. 

Sen. Bert Stedman speaks at the Sitka Chamber of Commerce meeting Wednesday. 

(Sentinel Photo by James Poulson)

Stedman, a member of the Republican majority in the Senate, explained the action, or lack thereof, in a legislative session that went more than a month longer than scheduled. The $143 million Stedman referred to was the overall cut made to the state operating budget, which amounts to a mere 2.7 cut since last year, while the state in the meantime is dealing with a $4 billion deficit. 

“That’s nothing to fix the problem,” Stedman said, adding that it’s possible higher-than-expected agency costs, oil tax credits or forest firefighting costs could eat up the savings that legislators worked five months to secure. 

“My guess-timate is that $143 million is going to be a positive number,” Stedman said. 

More drastic cuts were made to the state’s capital budget, but Stedman said it’s the operating budget that demands the most attention since built-in cost drivers will push the operating budget up hundreds of millions of dollars even if the state chooses not to spend any further. 

“Two hundred million next year. If we just get out of bed we have to cut $200 million just to stay even,” Stedman said. 

To fund the current budget the Legislature had to make a large draw on the Constitutional Budget Reserve. The session was held up by the need to get the approval of three-quarters of the legislators to pull the $3 billion from reserves. In previous years legislators covered deficits by pulling money from a statutory budget reserve or money that had been forward-funded for programs like education.

Stedman said the concern over what reserves to tap was misguided, given the long period of budget challenges ahead.

“It’s all really irrelevant because it’s all gonna go,” he said. 

The state’s savings account peaked at over $16 billion in FY 2013. It will end this current year under $10 billion. 

“When I’m standing here a year from now we’re going to have $4 billion in savings,” Stedman said. 

Those savings were built on high oil prices. In 2013 the Legislature’s Republican majority pushed through a new oil tax structure that was supposed to encourage production, but which opponents said unduly favored the producers. Stedman was one of the few members of the majority who opposed the change, which survived a 2014 statewide vote to repeal it. Since that time the price of oil has plummeted – currently it is around $65 a barrel – and the new tax system deprived the state of millions of dollars in taxes that would have resulted from the old system. 

“Our break-even-point price right now is $113 (per barrel),” Stedman said. 

Stedman, who is one of the leading oil experts in the Alaska Senate, said that at recent conferences it has become clear to him that triple-digit oil prices are a long way off. 

“No one is talking about oil going back to $100, $120, $140 a barrel,” he said. 

To make up future deficits, Stedman said there will have to be a mix of budget cuts and tax hikes. Cuts will be hard, however. Stedman said he had wondered about the growth in state government since 1980, but has learned that the size of the government has not outpaced inflation and population growth. 

“Relative to the size of the state and inflation ... we’re not that much different.” 

Neither cuts nor taxes alone will balance the budget, Stedman said. The Legislature’s job in the next cycle will be to find a balance of both. 

“And I’d argue it’s about one-third revenue and two-thirds expenditures,” Stedman said. 

The Senate this year tried to make a larger cut to education that would have saved the state more than $40 million. It was one of the issues that held up the budget process. Stedman said he did not support the reduction in the per-pupil funding in the original budget passed by the Senate. He said drastic cuts to important programs like education could have generational impacts on the state.

“You’re going to have a group of young Alaskans with a substandard education and we can’t fix it. We can’t back that up,” he said. 

The Legislature in the future may look to tapping the state Permanent Fund, which sits at around $55 billion. A simple majority vote of the Legislature is needed to tap the yearly earnings from the fund, and a vote of the people is required to tap the fund’s principal. Citing Sitka’s decision not to tap the city’s own permanent fund after closure of the pulp mill, Stedman said he would argue against such measures. 

“You’ll see your senator pretty protective of the Permanent Fund,” he said. 

Some of the impacts Sitka is facing with the new state operating budget are closure of the  local Recorder’s Office and loss of the single staffer who maintains the state parks in Sitka. Other communities are facing such cuts.

“You’ll notice some similarities here ... they’re all outside the Rail Belt,” Stedman said. 

Stedman said he’s optimistic that Department of Transportation cuts won’t result in the airport being scaled back from a 24-hour facility, although he said there’s work to be done for parking and future expansions. 

He noted that although the Marine Highway System survived this round, many legislators still see it as a “sinking fund.” 

“Boy, that was like going into water torture on a stretcher,” Stedman said, adding that the next push for Southeast is to make sure new ferries get put into service. 

In terms of progress, one of Stedman’s pet projects is still moving ahead. The $26.9 million Mt. Edgecumbe High School pool project now has a contractor on board working with the state DOT to finish the design. Stedman said the issue continues to be one of raising enough revenue to fund operating costs. 

“We want that facility to generate as much revenue as possible,” he said. 

The pool would service Mt. Edgecumbe High School as well as the Trooper Academy and Coast Guard. Additionally, it would be open to the public. Stedman said he’s run into pushback on the project but feels it is finally moving ahead for good. 

“The pool has been stuck in the mud a couple of times and we keep having to pry it out and I feel like we’ve pried it out for the last time,” he said. 

Stedman also expressed optimism about a potential natural gas pipeline that could bring gas from the Northern Alaska down to Southcentral. That project has been estimated at costs of over $40 billion, depending on the size of the pipeline, and figures to be a key issue during the 2016 legislative session. Stedman also said Arctic oil drilling could provide opportunities for Southeast communities to grow industry for maintaining and servicing the vessels needed for Arctic development, which he expects to expand greatly. 

“What you’re looking at coming into the Arctic is what you see off the coast of Louisiana and Texas,” he said, adding that it would be prudent for Alaskans to take the lead on Arctic oil rather than taking a back seat to Russia. 

“The Arctic is going to get developed. The question is are we going to be there,” he said. 

Answering a question from the audience, Stedman also said Sitkans could expect Medicaid expansion to happen. The expansion of the federal program is a longtime project of Gov. Bill Walker and is supported by Stedman.

“I think at the end of the day we’re going to have it. It’s not a matter of if but when.”