‘Several hundred million dollars’ of spending is hidden by Legislature’s creative accounting

Something might be going on in there.The Alaska State Capitol building as photographed in 2010. (Photo by Kimberly Vardeman/Creative Commons)

Unravelling years of the Legislature’s accounting sleight of hand would add “several hundred million dollars” to the state budget, the Legislature’s finance director told legislators on Tuesday.

With an election year on the line, legislators are calling for clearer accounting of state spending, but, as they found out in Tuesday’s House Finance Committee, many of the complexities and vagueness in the budget is their own doing.

Budget transparency has been a buzzword this session, first coined by Gov. Bill Walker in the introduction of his less-than-transparent “transparent budget.” Legislators have latched onto the term to criticize Walker’s budgeting, with Senate Finance co-chair Sen. Anna MacKinnon going as far to ask the term never be used in the Senate Finance Committee.

It’s a case of the kettle calling the pot black, according to the presentation given by Legislative Finance Division Director David Teal on Tuesday that laid what it would take to have the fully transparent budget legislators are calling for.

‘Several hundred million dollars’

One of the tactics highlighted at the hearing is the Legislature’s predilection to parceling out its spending into various quasi-dedicated funds. The money’s all effectively that sweet, sweet undesignated general fund money that’s typically used as a catchall measuring stick to judge one budget against another, but by putting it through different funds it effectively exempts the spending from that count.

Rep. Lance Pruitt, R-Anchorage, asked Teal how much it would change the budget if the Legislature were to unravel all the different accounts to put all such spending into undesignated general funds.

“It’s a tough guess on what that would be, I would say it’s several hundred million dollars,” Teal said, adding that the move has been considered before but shelved because it would look like the Legislature is increasing spending when it really isn’t.

“I know that last year, Rep. Seaton said, ‘We’ve got to unwind some of this stuff.’ Man, we can’t do that because unwinding that appears to be a huge budget increase,” he said. “It’s just the nature of this building that everybody is looking for budget reductions, not budget increases. To try to straighten this out is good in the long-run, great in concept in general, but it doesn’t change the amount you’re spending. It just changes the way you count it.”

The problem, Teal pointed out is political. Whichever Legislature that decides to unravel the spending will also be tagged with growing the budget.

“How can the Legislature fix it all when fixing it all makes the UGF budget appear to grow by several hundred million dollars?” he said. “How will the public know that the budget didn’t grow at all when we just straightened out the accounting.”

The answer?

The supplemental budget

The latest fad in the finance committees is to vociferously criticize Gov. Bill Walker and the administration for submitting a $170 million supplemental budget. This is the budget that helps align the budget passed last year with what are traditionally unexpected costs incurred throughout the year, like forest fires and other disasters.

Little attention has traditionally been paid to the supplemental. Other than the occasional legislative attempt to shift a bunch of spending from the upcoming budget to it to make it look like cuts (legislative budgeters sure do get creative, huh?), it gets little consideration from the Legislature as a whole and even less attention from the press and public.

This year, with $100 million in Medicaid spending included in the $170 million request, legislators have been on the warpath, criticizing the administration for wiping out the cuts the Legislature made last year.

There’s just one problem with that analysis.

Again, let’s turn to Teal:

“Look at the number that the governor submitted of $170 million. That’s not the governor’s problem, really it isn’t. Most of that is things the Legislature did last year. $100 million of it’s Medicaid, you knew it was underfunded. $24 million of it was the Marine Highways, that was some shuffling around between years that didn’t work out as planned,” he said. “You may remember that in the October session, I was in front of the committee explaining the holes that were left. Those holes were not left by the governor. They were the result of legislative action.”

Asked how to handle the “supplemental problem,” Teal said the Legislature could start by not underfunding the budget to start off with. Costs like Medicaid fluctuate depending on the need and the Legislature can’t.

“The bulk of this $170 million is holes that were left by last year’s legislative process,” he said. “They are not things the governor came and requested.”

And finally transparency

While much of the presentation shed light on the Legislature’s own less-than-transparent budgeting, one thing that Teal agreed with is that the governor’s “transparent budget” is anything but transparent. Of particular concern is that Walker isn’t counting a withdrawal from the Constitutional Budget Reserve (the one that needs a ¾ vote of each chamber to tap) as undesignated general fund spending (the traditional measuring stick for state spending). Teal flatly called it misleading.

“I would say you’re fooling yourself and you’re fooling the public if you think you can count that way,” he said.

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