Infusion of federal relief dollars could mean big things for state budget: Memo

The Alaska Capitol Building.

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Following last week’s brouhaha over Sen. Lora Reinbold, I’d like very much for us all to move onto to literally anything else… how about that budget? Last I checked, we still really don’t have a plan to deal with the state’s structural deficit, the dividend or future revenues. But the state could get a lifeline… allowing the can to be kicked once more.

The $1,400 stimulus checks aren’t the only checks that will be going out under the American Rescue Plan Act. Of the $1.9 trillion spend, $350 billion will be going to state, local and tribal governments to cover pandemic-related expenditures, to mitigate economic harm and, critically, to replenish lost revenue. Covering lost revenue has been particularly critical for Alaska, which is one of the states hardest hit by collapsing oil prices, and the picture is even more dire for local governments that rely heavily on tourism dollars. The National Conference of State Legislatures estimates Alaska will receive about $1.01 billion through this program and $112 million for capital projects, local governments will receive a combined $231 million, tribes will get about $400 million and about $358 million could be headed to schools, just to name a few.

The big question moving forward is just how the state will spend its dollars. While much of the decisions about how CARES Act money went out over the last year was largely left up to Gov. Mike Dunleavy because the money arrived during the interim, the Legislature is currently in session and will be in the driver’s seat to direct that money this time around. Obviously, the money provides a potential and partial remedy to the whole problem of overdrawing the Alaska Permanent Fund. If the Legislature were to ignore Gov. Mike Dunleavy’s demand for a $5,000 dividend—a figure that Revenue Commissioner-appointee Lucinda Mahoney has suggested may have some leeway given the federal stimulus checks—and stick with the $1,000 dividend that has been the running policy in the last few years, things would balance out pretty quickly. While untangling all the budgeting gimmicks is tricky, the rough deficit for a status quo budget was about $880 million heading into the session.

One big issue, though, is that the money heading to local government is tied to population and not the need. The situation is well-illustrated by the Denali Borough, where Mayor Clay Walker told the Fairbanks Daily News-Miner last week that he estimated the borough would receive about $410,000 through the legislation when they lost a whopping $4 million in just one year. “We lost $4 million in revenue last year, will lose millions more this year and our relief allocation, spread out over two years, is (an estimated) $410,000,” he told the paper. “Many counties, which lose no revenue, are set to receive millions. … I’m looking at the county list of what every county is getting and 99% of the places are pleased as punch. Us and Skagway get totally hosed.” But of course, not all things will land equally across the state. Some communities like the Denali Borough and Skagway will still be deep underwater while some may even come out ahead.

Directing state money to help cover local governments would be a good idea but that’s where you’ll start to run into the political realities of the Legislature. Will legislators be keen on directed payments if their communities are not among them? And perhaps even more critically, what will happen to other elements of the budget that have languished in recent years of cuts? The Legislature could fully fund its commitments to school bond debt reimbursement and community assistance payments, both measures that would go an incredibly long way to easing pressure on local budgets. There’s some fear, though, that the Legislature may opt to go in the opposite direction, cutting state funding with the argument that, hey, local governments are getting a boost themselves!

It’s a can of worms at the end of the day, but at least it’s a can of worms with some meaty policy decisions to hash out instead of arguing whether or not the latest sheet of plastic sported by Sen. Lora Reinbold meets CDC requirements.

And that’s a welcome change of pace.

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