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© State of Alaska House Special Committee on Fiscal Policy: http://www.alaskabudget.com/

BRIDGING AN ALMOST $4 BILLION GAP 
 
HOW IS THE BUDGET DETERMINED
IN THE STATE OF ALASKA? 
​
​BY SARAH CUNNINGHAM MORRIS

Picture© State of Alaska House Special Committee on Fiscal Policy: http://www.alaskabudget.com/
The budget of the State of Alaska has been in the news—a lot. There’s a shortfall and it’s big, at an estimated almost $4 billion. Oil revenues that provided the majority of funding for State government have plummeted and lawmakers are scrambling to find solutions. The vast amount of information on this budget dilemma can leave us stunned, in part because it assumes that we know exactly how the State budget process works. Don’t we all wish that were true? 

The truth is that most of us aren’t paying much attention to the State budget. It can be dry (ok, it can be outright boring) and as a result, it doesn’t get noticed until there’s a problem. But really, the State budget is ours, so let us take a step back and learn some fundamentals. 

There are four budgets that are developed each year: the capital budget (including items like construction, buildings, and commodities over $25,000), operating budget (day-to-day operations and programs), mental health budget (capital and operating items), and a supplemental budget. Each goes through a similar process, but for the purposes of this article I am going to focus our attention on the operating budget; whenever you see “budget,” I mean this one. 

The operating budget touches our lives. It includes such items as the Department of Motor Vehicles (the notorious DMV), Department of Education (school funding), Fish and Game (wildlife management, fishing licenses), Health and Social Services (public health programs, Medicaid), and the State Troopers. 

The foundation of the budget is the Alaskan Constitution. No funds can be withdrawn from the State treasury except in accordance with appropriations made by law. The Legislature carries the power to appropriate, but it is the Governor that must submit the budget and appropriation bills to the Legislature. The Governor’s budget will include expenditures for agency operations, education formula funding, Medicaid formula funding, and debt payments, among other items. It will also include expectations for revenue that would be required to fund the budget. Although these two bodies play significant roles in the budget, the agencies must first provide considerable input. 
The State fiscal years run from July 1 of the present year to June 30 of the next year. Each agency works to develop their budget for the upcoming fiscal year from midsummer through early fall of each year. Basically, as soon as the new fiscal year starts, the agencies must start planning their expenditures for the next. They do this with the Governor’s recommendations and objectives in mind. The budgets are based on increments, with very few exceptions. This means that if a budget item for the current year is $100 and next year it needs $125, then the agency proposes a $25 increment. It is assumed that the next fiscal year will include the same base as the current fiscal year. However, lawmakers can—and do—make cuts called decrements, but let us focus on the increments. 

Once agencies have crafted their respective budget requests, the request is submitted to the Office of Management and Budget (OMB), which is a part of the Governor’s Office. OMB is responsible for the analysis of the budget and prepares recommendations for the Governor, who will do additional review of each agency budget. Once this part of the process is complete, the Governor’s Budget is used to develop the appropriation bill that will be submitted to the Legislature by December 15. This bill is the foundation from which the Legislature begins its work. 

At the beginning of the legislative session, the appropriation bill is referred to the House Rules Committee. Both the House Rules Committee and the Senate Rules Committee introduce a version of it, which is the same at the beginning. The bills are read for the first time and then referred to the respective Finance Committees. The House Finance Committee (HFIN) and the Senate Finance Committee (SFIN) will both work on the bill concurrently, but the House usually acts first. The appropriation bill will likely change as it goes through an editing process. 

HFIN and SFIN will appoint subcommittees for each agency. The HFIN and SFIN subcommittees will do their work on the bill and then submit their version of the appropriation bill to the respective full finance committees. The finance committees will invite public testimony or testimony from agencies while they work through the bill. They will both finalize the bill (now the committee’s substitute version) and move it out of committee. The substitute version then goes to the full House, where more changes can be made. Once it passes out of the House it goes to the full Senate who can make additional changes and then move to a vote. The bill goes back to the full House for its concurrence, but concurrence or agreement is not usually given by the House. It is most likely that the House will want the Senate to retract the changes it made to the bill, but that usually doesn’t happen either. Therefore, a Conference Committee is tasked with finding a compromise between the two bills. When their version is complete it goes back to the full House and full Senate for a final vote. Once approved, it is transmitted to the Governor, who has 20 working days to exercise line item veto power. Then the bill is law, going into effect on July 1—the first day of the fiscal year. 

As the session reaches its scheduled conclusion, two things are in the forefront of people’s minds, one, “Will the session be extended to give more time for lawmakers to complete their work?” and two, “How to pay for the expenditures indicated this budget?” The Governor’s budget assumed transfers out of the Earnings Reserve and new revenue sources such as an income tax and motor fuel tax. Without these additional funding sources, there would be an approximate $4 billion gap or higher between income and expenditures. Legislators have considerable work ahead of them. ​